Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.

18

Practical Questions

Shares issued at par and lumpsum payment

Q No 1: Harsh Ltd. was registered with the authorized capital of Rs. 25,00,000 divided into
shares of Rs. 10 each. it incurred preliminary expenses of Rs. 50,000. It issued 1,00,000
equity share for public subscription at par after incurring share issue expenses of Rs. 25,000.
All money was payable in lumpsum on application. Applications were received for 2,50,000
shares and directors made the allotment. Show necessary Journal Entry in the books of Harsh
Ltd.
(Similar Question PQ1: Do it yourself)

Shares issued at premium and lumpsum payment

Q No 2: Rishi Limited issued 12,000 equity shares of 100 each at a premium of 20% payable
in lumpsum along with application. 12,000 shares were applied for and allotted. All money
due was received.
Give necessary journal entries to record above transaction in the books of Rishi Ltd.
(Similar Question PQ2: Do it yourself)

Shares issued at par and installment payment

Q No 3: Rohan Limited issued 20,000 equity shares of Rs. 10 each payable as:
Rs. 2 per share on application
Rs. 3 per share on allotment
Rs. 4 per share on first call
Rs. 1 per share on final call
All the shares were subscribed. Money due on all shares was fully received.
Pass the necessary Journal Entries to record the above transactions in the books of Roahn
Limited.
(Similar Question PQ3 & PQ4: Do it yourself)

Q No 4: ABC Limited offered to public for subscription 10,000 shares of Rs. 10 each at par.
Details of the sum payable is as follows:
Installment Rs. Per Share Due Date Date of Receipt
Application 4 15.07.2022
Allotment 3 04.08.2022 31.08.2022
1st Call 2 10.10.2022 31.10.2022
Final Call 1 02.12.2022 29.12.2022

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.19

Make journal entries to record the above issued shares if:

(i) Application Received for 10,000 Shares
(ii) Application received for 9,000 Shares
(Similar Question PQ5: Do it yourself)

Shares issued at premium and installment payment

Q No 5: Jupiter Company Limited issued 35,000 equity shares of Rs. 10 each at a premium
of Rs.2 payable as follows:
On Application Rs. 3
On Allotment Rs. 5 (including premium)
Balance on First and Final Call
The issue was fully subscribed. All the money was duly received. Record journal entries in
the books of the Company.
(Similar Question PQ6: Do it yourself)

Q No 6: X Ltd. was registered with a capital of Rs. 10,00,000 in shares of Rs. 10 each. It
issued a prospectus inviting applications for 10,000 shares at 40% premium payable as
follows:
On Application Rs. 5 (including Rs. 1 Premium),
On Allotment Rs. 4 (including Rs. 1 Premium)
On First Call Rs. 3 (including Rs. 1 Premium),
On Second Call Balance.
Applications were received for 10,000 shares. All money was duly received. Pass the
necessary Journal entries.
(Similar Question PQ7: Do it yourself)

Calls in Arrear and Interest thereon

Q No 7: The Kalyan cotton Mills Ltd. was registered on 1st January, 2011 with a capital of
Rs 10,00,000 divided into 1,00,000 shares of Rs 10 each. The company issued 60,000 shares
of which 40,000 shares were taken up by the public and Rs 1 per share was received with
application. On 1st February, these shares were allotted and Rs 2 per share was duly received
on 28th February as allotment money. A first call of Rs 3 per share was made on 1st March
which was received by 15th March the exception of 100 shares. The final call of Rs 4 per
share was made on 1st June and the amount due, with the exception of 400 shares, was
received by 30th June.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.20

All arrear on calls received on 31st August along with interest. Pass the necessary Journal
entries. (Company adopt Table F for interest on calls in advance and calls in arrear, if any)
(Similar Question PQ8: Do it yourself)

Calls in Advance and Interest thereon

Q No 8: Bala Limited issued at par 1,00,000 Equity shares of Rs.10 each payable Rs.2.50 on
application; Rs.3 on allotment; Rs. 2 on first call and balance on the final call. All the shares
were fully subscribed. Mr. Sharma who held 10,000 shares paid full remaining amount on
first call itself. The final call which was made after 3 months from first call was fully paid
except a shareholder having 1000 shares who paid his due amount after 2 months along with
interest on calls in arrears. Company also paid interest on calls in advance to Mr. Sharma.
Give journal entries to record these transactions.
(Similar Question PQ9: Do it yourself)

Shares issued at par and Oversubscription

Q No 9: Mona Earth Mover Limited decided to issue 12,000 shares of Rs.100 each payable at
Rs. 30 on application, Rs.40 on allotment, Rs. 20 on first call and balance on second and
final call. Applications were received for 13,000 shares. The directors decided to reject
application of 1,000 shares and their application money being refunded in full. The
allotment money was duly received on all the shares, and all sums due on calls are received.
Record the transactions in the books of Mona Earth Movers Limited.
(Similar Question PQ10: Do it yourself)

Shares issued at premium and Oversubscription with Pro-rata allotment

Q No 10: Mohi Ltd issued a prospectus inviting applications for 20,000 shares of Rs. 10 each
at a premium of Rs. 2 per share payable as follows:
on Application Rs. 2, on Allotment Rs. 5 (including premium), on First Call Rs. 3, on Second
& Final Call Rs. 2.
Applications were received for 30,000 shares and pro rata allotment was made to all
applicants. It was decided to utilise excess Application Money towards the amount due on
allotment.
Required: Pass the necessary journal entries.
(Similar Question PQ11: Do it yourself)

Q No 11: Sajal Ltd. issued Rs. 10,00,000 new capital divided into Rs. 100 shares at a premium
of Rs. 20 per share payable, as under:

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.21

On Application Rs. 10 per share

On Allotment Rs. 40 per share (Including Rs. 20 premium)
On First and Final Call Balance
Overpayments on application were to be applied towards sums due on allotment. Where no
allotment was made, money was to be returned in full. The issue was over-subscribed to
the extent of 13,000 shares. Applicants for 12,000 shares were allotted only 2,000 shares
and applicants for 3,000 shares were sent letters of regret and application deposits were
returned to them. All the money due on allotment and final call was duly received.
Required: Make the necessary entries in the Company’s books to record the above
transactions.

Q No 12: Piyush Limited is a company with an authorized share capital of Rs. 2,00,00,000
in equity shares of Rs. 10 each, of which 15,00,000 shares had been issued and fully paid on
30th June, 2017. The company proposed to make a further issue of 1,30,000 shares of Rs.
10 each at a price of Rs. 12 each, the arrangements for payment being:
(i) Rs. 2 per share payable on application, to be received by 1st July, 2017;
(ii) Allotment to be made on 10th July, 2017 and a further Rs. 5 per share (including the
premium) to be payable;
(iii) The final call for the balance to be made, and the money received by 30th April, 2018.
Applications were received for 4,20,000 shares and were dealt with as follows:
(1) Applicants for 20,000 shares received allotment in full;
(2) Applicants for 1,00,000 shares received an allotment of one share for every two
applied for; no money was returned to these applicants, the surplus on application being
used to reduce the amount due on allotment;
(3) Applicants for 3,00,000 shares received an allotment of one share for every five
shares applied for; the money due on allotment was retained by the company, the
excess being returned to the applicants; and
(4) The money due on final call was received on the due date. You are required to
record these transactions (including cash items) in the journal of Piyush limited.
(Similar Question PQ12: Do it yourself)

Pro-rata allotment with calls in arrear and calls in advance

Q No 13: X Ltd. issued to the public for subscription 40,000 shares of Rs. 10 each at par
payable as Rs. 2 each on Application, Allotment and First Call and the balance on the Final
Call. Applications were received for 60,000 Shares and allotment was made pro rata to 80%
of applicants. R to whom 1,600 shares were allotted paid only the Application Money and S

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.22

who had applied for 2,400 shares paid the entire call money due along with the allotment.
Pass the necessary Journal entries to record the above transactions assuming that Calls-in-
arrears Account and Calls in advance account is maintained.
(Similar Question PQ13: Do it yourself)

Q No 14: Joravar Ltd. issued 50,000 shares of Rs. 10 each at a premiun of Rs. 2 per share
payable as Rs. 3 on application, Rs. 5 including premium on allotment and the balance in
equal instalments over two calls. Applications were received for 92,000 shares and the
allotment was done as under:
A. Applicants of 40,000 shares — Allotted 30,000 Shares
B. Applicants of 40,000 shares — Allotted 20,000 Shares
C. Applicants of 12,000 shares — Nil
Suresh, who had applied for 2,000 shares (Category A) did not pay any money other than
Application Money.
Chander, who was allotted 800 shares (Category B) paid the calls money due along with
allotment. All other allottees paid their dues as per schedule.
Required: Pass the necessary Journal entries in the books of Joravar Ltd. to record the
above assuming that Calls-in-arrears Account is maintained.

Forfeiture of Shares
Q No 15: Ganga Limited issued 10,000 equity shares of 100 each payable as follows:
Rs. 20 on application,
Rs. 30 on allotment,
Rs. 20 on first call and
Rs. 30 on second and final calls
10,000 shares were applied for and allotted.
All money due was received with the exception of both calls on 300 shares held by Supriya.
These shares were forfeited. Give necessary journal entries relating to Forfeiture of Shares.
(Similar Question PQ14: Do it yourself)

Q No 16: X Ltd. issued 2,000 equity shares of Rs. 10 each at a premium of Rs. 4 per share
payable as under:
On application Rs. 3 per share, on allotment Rs. 5 per share (including premium), on first
call Rs. 4 per share and balance on second call. Mr. Y was allotted 40 shares. Mr. Y failed to
pay allotment money and on his subsequent failure to pay the first call, his shares were
forfeited. Pass the necessary journal entry relating to the forfeiture of shares.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.23

Q No 17: Avika Ltd. with a share capital of Rs. 1,00,000 divided into 2,000 shares of Rs. 50
each offers the shares to the public as under:
Rs. 10 per share payable on application; Rs. 10 per share payable on allotment; Rs. 15 per
share payable on 1st call; and Rs. 15 per share payable on second call.
Shareholder ‘A’ who holds 30 shares has paid only the Application Money.
Shareholder ‘B’ who holds 20 shares has paid Application Money on 20 shares and allotment
money on only 10 shares. He has not paid only other calls.
Shareholder ‘C’ who holds 18 shares has paid only the application and allotment money.
Shareholder ‘D’ who holds 5 shares has paid application, allotment and first call money.
Shareholder ‘E’ who holds 3 shares has paid application, allotment and first call money in
full and second call money on only 2 shares.
The company forfeits the shares of the above shareholders who have not paid the arrears.
Required: Journalise the above transactions for forfeiture in the books of Avika Ltd.
(Similar Question PQ15: Do it yourself)

Q No 18: BLUE Ltd. offered 40,000 shares of Rs. 10 each at 20% premium payable as follows:
On application Rs. 6 (including Rs. 1 premium) and balance on allotment. Public has applied
for 65,000 shares. Shares were allotted on pro rata to the applicants of 50,000 shares. Money
overpaid on applications was employed on account of sum due on allotment. All the
shareholders have paid the amount up to allotment except Mohan, the allottee of 8,000
shares and his shares were forfeited. Pass the necessary journal entries relating to forfeiture
of shares.

Q No 19: M/s Herbal Tea Plantations Ltd. was registered with a capital of Rs 1 crore divided
into equity shares of Rs 100 each. The company offered to public 50000 shares at a premium
of Rs 20 per share. The amount on shares was payable as:
Rs 25 on application
Rs 50 (including Rs 20 premium) on allotment
Rs 20 on first call and Rs 25 on final call.
Applications were received for 75000 shares. Shares were allotted to the applicants on pro-
rata basis. Kanti Bhai who was allotted 500 shares did not pay the allotment money. He also
failed to pay the first call. His shares were forfeited. Sheetal was holding 200 shares did not
pay the first call. Final call was not made.
Make journal entries in the books of the company.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.24

Forfeiture and Reissue of Shares

Q No 20: X Ltd. issued 2,000 shares of Rs. 10 each at par payable as under:
On application Rs. 2 per share,
On allotment Rs. 3 per share
On first call Rs. 3 per share,
On second call Rs. 2 per share.
Mr. X was allotted 40 shares. Mr. X failed to pay allotment money and on his subsequent
failure to pay the first call and final call money, his shares were forfeited. Forfeited shares
were reissued at 12 per share as full paid up. Pass the necessary journal entry relating to
the forfeiture and reissue of shares.
(Similar Question PQ16: Do it yourself)

Q No 21: The board of director of Poly Plastic Limited resolved that 200 equity shares of
Rs.100 each be forfeited for non-payment of the second and final call of Rs.30 per share.
Out of these, 150 shares were re-issued at Rs.60 per share to Mohit. Show the necessary
journal entries.
(Similar Question PQ17 & Q18: Do it yourself)

Q No 22: Arjun & Co. Ltd. issued a prospectus offering 2,00,000 shares of Rs.10 each on the
following terms:
On Application Rs. 1 per share
On Allotment Rs.3 per share (including premium of Rs. 2)
On First Call (three months after allotment) Rs.4 per share
On Second Call (three months after first call) Rs.4 per share
Subscriptions were received for 3,17,000 shares on 3rd April and the allotment was made
on 30th April as under:
Shares Allotted
Allotment in full (two applicants paid in full on allotment in 38,000
respect of 4,000 shares each)
Allotment of two-thirds of shares applied for 1,60,000
Allotment of one-fourth of shares applied for 2,000
Cash amounting to Rs. 31,000 (being application money received with applications for
31,000 shares upon which no allotments were made) was returned to the applicants on 5th
May. The amounts due were received on the due dates with the exception of the final call
on 100 shares. These Shares were forfeited on 15th November and re-issued to Aayan on the

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.25

16th November for payment of Rs.9 per share. The company paid the interest due on calls-
in-Advance on 31st October in cash.
Show the Journal and Cash Book Entries and draw a balance sheet of the Company giving
effect to the above transactions.

Q No 23: White Ltd. invited applications for issuing 2,00,000 equity shares of Rs.10 each.
The amount was payable as follows:
On Application Rs. 3 per share
On Allotment Rs. 5 per share
On First and Final call Rs. 2 per share
Application for 3,00,000 shares were received and pro-rata allotment was made to all the
applicants on the following basis:
Applications for 2,00,000 shares were allotted 1,50,000 shares on pro rata basis.
Applications for 1,00,000 shares were allotted 50,000 shares on pro rata basis.
Bajaj, who was allotted 3,000 shares out of the group applying for 2,00,000 shares, failed
to pay the allotment money. His shares were forfeited immediately after allotment.
Sharma who had applied for 2,000 shares out of the group applying for 1,00,000 shares failed
to pay the first and final call. His shares were also forfeited.
Out of the forfeited shares 3,500 shares were re-issued as fully paid up @ Rs. 8 per share.
The reissued shares included all the forfeited shares of Bajaj.
Required: Pass the necessary journal entries to record the above transactions.

Shares issued for consideration other than cash

Q No 24: Anushree Ltd. purchased land and building worth Rs. 50,00,000 and issued
sufficient number equity shares at par to discharge purchase consideration. Give necessary
journal entry.

Q No 25: Divya Ltd. bought furniture for Rs. 2,00,000. It paid Rs. 40,000 by cheque and
issued sufficient number of equity shares at a premium of 10%. Calculate no. of equity shares
to be issued and show necessary journal entry.

Q No 26: Mandip Ltd. acquired vehicle worth Rs. 10,00,000. It paid Rs. 1,25,000 by cheques
and issued equity shares of Rs. 100 each at a premium of 10%. Calculate no. of equity shares
to be issued and show necessary journal entry in the books of Mandip Ltd.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.26

Q No 27: X Ltd. issued 2,000 shares of Rs. 10 each credited as fully paid to the promoters
for their services and issued 1,000 shares of Rs. 10 each credited as fully paid to the
underwriters for their underwriting services. Journalise these transactions.

Q No 28: On April,1,2018, X Ltd. took over the Assets of Rs. 6,80,000 and Creditors of Rs.
80,000 of Y Ltd. payable 10% by a cheque and the balance by the issue of fully paid Equity
Shares of Rs. 100 each. Pass the necessary Journal Entries in the books of the company on
April,1,2018 if such Shares are issued at par.

Q No 29: Jyoti Ltd. acquired a running business of Prakash Ltd. for purchase consideration
of 9,00,000. It took over the Assets of Rs. 12,00,000 and Creditors of Rs. 2,50,000 of Prakash
Ltd. payable 10% by a cheque and the balance by the issue of fully paid Equity Shares of Rs.
100 each. Pass the necessary Journal Entries in the books of the company if such Shares are
issued at par.

Q No 30: DSP Ltd. acquired a running business of Yogi Ltd. for purchase consideration of
16,00,000. It took over the land and building of Rs. 5,00,000, Plant worth Rs. 3,00,000,
Debtors of Rs. 4,00,000. It also took over the Creditors of Rs. 1,00,000 of Yogi Ltd. payable
25% by a cheque and the balance by the issue of fully paid Equity Shares of Rs. 100 each.
Pass the necessary Journal Entries in the books of the company if such Shares are issued at
premium of 20%.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.27

Practice Questions

PQ No 1: Monisha Ltd. paid preliminary expenses of Rs. 50,000 and registered with the
authorized capital of Rs. 50,00,000 divided into shares of Rs. 25 each. It issued 10,000 equity
share for public subscription at par with share issue expenses of Rs. 45,000. All money was
payable in lumpsum on application. Applications were received for and directors made the
allotment. Show necessary Journal Entry in the books of Monisha Ltd.

PQ No 2: Anchal Limited issued 25,000 equity shares of 100 each at a premium of 50%
payable in lumpsum on application. 25,000 shares were applied for and allotted.
Give necessary journal entries to record above transaction in the books of Anchal Ltd.

PQ No 3: Aditi Ltd. offered to public for subscription 15,000 shares of Rs. 20 each at par.
The sum was payable Rs. 5 per share each on application, allotment, 1st Call and Final Call.
Make journal entries to record the above issued shares.

PQ No 4: Rohit Ltd. was registered with a capital of Rs. 10,00,000 in shares of Rs. 10 each.
It issued a prospectus inviting applications for 10,000 shares payable as follows:
On Application Rs. 4
On Allotment Rs. 3
On First Call Rs. 2
On Second Call Balance
Applications were received for 10,000 shares. All money was duly received. Pass the
necessary Journal entries.
Solution:
Journal
Date Particulars L.F. Dr. Cr
(Rs.) (Rs.)

1. Bank A/c Dr. 40,000

To Share Application A/c 40,000

(Being the Application Money received on 10,000
@ Rs. 4 per share)

2. Share Application A/c Dr. 40,000

To Share Capital A/c 40,000
(Being the Application Money adjusted)

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.28

3. Share Allotment A/c Dr. 30,000

To Share Capital A/c 30,000

(Being the allotment money due on 10,000 shares
@ Rs. 3 per share)

4. Bank A/c Dr. 30,000

To Share Allotment A/c (Being the allotment money 30,000

received)

5. Share First Call A/c Dr. 20,000

To Share Capital A/c 20,000

(Being the 1st Call money due on 10,000 shares
@ Rs. 2 per share)

6. Bank A/c Dr. 20,000

To Share 1st Call A/c 20,000
(Being the share 1st call money received on 10,000
shares
@ Rs. 2 per share)

7. Share Second & Final Call A/c Dr. 10,000

(Being the share second & final call money due on 10,000 10,000
shares @ Rs. 1 per share)

8. Bank A/c Dr. 10,000

To Share Second & Final Call A/c (Being the share second 10,000
& final call money received on 10,000) @ Rs. 1 per share)

PQ No 5: On 1st April, 2020, A Ltd. issued 43,000 shares of Rs. 100 each payable as follows:
Rs. 20 on application;
Rs. 30 on allotment;
Rs. 25 on 1st October, 2020; and
Rs. 25 on 1st February, 2021.
By 20th May, 40,000 shares were applied for and all applications were accepted. Allotment
was made on 1st June. All sums due on allotment were received on 15th June; those on 1st
call were received on 20th October and final call money received on 16th February 2021.
Journalise the transactions when accounts were closed on 31st March, 2021.
Solution: (Here in this question No. of shares offered for subscription is less than No.
of shares subscribed by the public, therefor all calculation will be on 40,000 shares)

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.29

Journal
Date Particulars Dr. (Rs.) Cr (Rs.)

2020 Bank A/c Dr. 8,00,000

20.05 To Share Application A/c 8,00,000

(Being the Application Money received on 40,000 @ Rs. 20
per share)

01.06 Share Application A/c Dr. 8,00,000

To Share Capital A/c 8,00,000
(Being the Application Money adjusted)

Share Allotment A/c Dr. 12,00,000

To Share Capital A/c 12,00,000

(Being the allotment money due on 40,000 shares @ Rs. 30
per share)

15.07 Bank A/c Dr. 12,00,000

To Share Allotment A/c 12,00,000
(Being the allotment money received)

01.10 Share First Call A/c Dr. 10,00,000

To Share Capital A/c 10,00,000

(Being the 1st Call money due on 40,000 shares @ Rs. 25
per share)

20.10 Bank A/c Dr. 10,00,000

To Share 1st Call A/c 10,00,000
(Being the share 1st call money received on 40,000 shares
@ Rs. 25 per share)

2021 Share Second & Final Call A/c Dr. 10,00,000

01.02 (Being the share second & final call money due on 40,000 10,00,000
shares @ Rs. 25 per share)

31.03 Bank A/c Dr. 10,00,000

To Share Second & Final Call A/c 10,00,000

(Being the share second & final call money received on
40,000 shares @ Rs. 25 per share)

PQ No 6: On 1st October, 2020 Ginger Limited received applications for 2,50,000 Equity

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.30

Shares of Rs. 100 each to be issued at a premium of 25 per cent payable as:
On Application Rs. 25
On Allotment Rs. 75 (including premium)
Balance Amount on Shares as and when required
The shares were allotted by the Company on October 20, 2020 and the allotment money
was duly received on October 31, 2020.
Record journal entries in the books of the company to record the transactions in connection
with the issue of shares.
Solution
Ginger Limited
Journal
Date Particulars L.F. Debit Credit
2020 (Rs.000) (Rs.000)
Oct. 1 Bank A/c Dr. 6,250
To Equity Share Application A/c 6,250
(Money received on applications for 2,50,000 shares
@ Rs. 25 per share)
Oct. Equity Share Application A/c Dr. 6,250
20 To Equity Share Capital A/c 6,250
(Transfer of application money on allotment to
share capital)
Oct. Equity Share Allotment A/c Dr. 18,750
20 To Equity Share Capital A/c 12,500
To Securities Premium A/c 6,250
(Amount due on allotment of 2,50,000 shares @ Rs.
75 per share including premium)
Oct. Bank A/c Dr. 18,750
31 To, Equity Share Allotment A/c 18,750
Note: Bifurcation of Allotment amount
Security premium per share = 25% x Rs.100 = Rs.25
Money received on allotment per share = Rs.75
Premium Per Share Capital Per Share
Rs.25 Rs.50
No. of Shares (in '000) 250 250
Total Amount (In '000) Rs. 6,250 Rs.12,500

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.31

PQ No 7: X Ltd. issued 2,000 equity shares of Rs. 10 each at a premium of Rs. 4 per share
payable as under:
On application Rs. 3 per share (including Rs. 1 premium),
On allotment Rs. 4 per share (including Rs. 1 premium),
On first call Rs. 4 per share (including Rs. 1 premium),
On second call Balance.
Pass the necessary journal entry.

PQ No 8: Raj Limited issued 4,000 shares of Rs. 10 each at par. Money was payable as
Rs. 2 per share on application;
Rs. 2 per share on allotment,
Rs. 4 per share on first call (after two months of allotment) and
the balance on final call (after three months of 1st call).
All money payable was duly received except from Xao who holds 50 shares did not paid 1st
call and Final Call money.
Show necessary journal entry assuming Xao paid its calls in arrear after one month of final
call and Raj Ltd. charge/ allowed interest as per “TABLE F” on calls in arrear/ calls in
advance.

PQ No 9: Copper Mines Ltd. Invited applications for issuing 2,00,000 shares of Rs 100 each
at a premium of Rs 10 per share. The amount was payable as follows:
On Application Rs 25 (on 1st January, 2012)
On allotment Rs 45 (on 1st February 2012)
Balance on First and Final call (on 1st March. 2012)
The issue was fully subscribed. All calls were duly received except the final call money on
1,000 shares. The unpaid amount on these shares was received on 31st March, 2012 along
with interest. The company has adopted Table F of the Companies Act 2013 for charging
interest on calls-in-Arrear. Calculate the interest on calls-in-Arrear and Pass the necessary
Journal entries on the books of the company.

PQ No 10: Bandhan Ltd. invited applications for 50,000 equity shares at Rs.50 each, which
are payable as on application Rs.20, on allotment Rs.10 and on first and final call Rs. 20.
The company received applications for 60,000 shares. The directors accepted application
for 50,000 shares and rejected the rest. Show Journal entries if company refunded the
application money to rejected applicants.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.32

PQ No 11: ABC Ltd. was floated with a capital of Rs 3,00,000 divided into shares of Rs 10
each. It offered 4,000 shares on the following terms:
Rs 2 per shares on application, Rs 5 per share (including Rs 2 premium) on allotment, Rs 3
per share on first call and Rs 2 per share on final call. Applications were received for 6,000
shares. Director made pro rata allotment to all applicants adjusting excess application
money with allotment. All the money due on shares was received.
Give the necessary Journal entries.

PQ No 12: Red Ltd. invited applications for issuing 1,00,000 Equity shares of Rs. 10 each.
The amount was payable as follows:
(i) On Application Rs. 3 per share
(ii) On Allotment Rs. 2 per share
(iii) On First and Final Call Rs.5 per share
Applications were received for 2,20,000 shares. Applications for 20,000 shares were
rejected and their application money was refunded. Shares were allotted to the remaining
applicants as follows:
# Allotted 50% shares to Raman who had applied for 40,000 shares.
# Allotted in full to Akbar who had applied for 20,000 shares.
# Allotted balance of the shares on pro rata basis to the other application.
Excess application money was utilised in payment of allotment and final call. All calls
were made and were duly received. Pass the necessary Journal entries in the books of Red
Ltd.
Solution
Journal
Date Particulars L.F. Dr. (Rs.) Cr. (Rs.
)

1. Bank A/c Dr. 6,60,000

To Share Application A/c 6,60,000
(Being the application money received)

2. Share Application A/c Dr. 6,60,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.33

To Share Capital A/c (1,00,000 x Rs. 3) 3,00,000

To Share Allotment A/c (80,000 x Rs. 2) 1,60,000
To Bank a/c (20,000 x Rs. 3) 60,000
To Calls-in Advance A/c 1,40,000
(Being the Application Money adjusted & Surplus
refunded)

3. Share Allotment A/c Dr. 2,00,000

To Share Capital A/c 2,00,000

(Being the Allotment Money due)

4. Bank A/c [ Rs. 2,00,000 - Rs.1,60,000] Dr. 40,000

To Share Allotment A/c 40,000
(Being the Allotment Money received)

5. Share First & Final Call A/c Dr. 5,00,000

To Share Capital A/c 5,00,000

(Being the First & Final Call Money due)

6. Bank A/c Dr. 3.60,000

Calls-in-advance A/c Dr. 1.40,000
To Share First & Final Call A/c 5,00,000
(Being the First and Final Call Money received and
Calls in advance adjusted)
Working Note:
STATEMENT SHOWING THE ADJUSTMENT OF APPLICATION MONEY RECEIVED
Adjustment of Application Money
Application
Shares Shares Received
Category Money
Applied Allotted Share Share Calls-in
Received Refund
Capital Allotment Advance

— 20,000 0 60,000 0 0 0 60,000

I 40,000 20,000 1,20,000 60,000 40,000 20,000 —

II 20,000 20,000 60,000 60,000 — — —

III 1,40,000 60,000 4,20,000 1,80,000 1,20,000 1,20,000 —

Total 2,20,000 1,00,000 6,60,000 3,00,000 1,60,000 1,40,000 60,000

PQ No 13: Jyoti Ltd. issued 2,00,000 shares of Rs. 10 each term of payments being.
Rs. 3 on Application

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.34

Rs. 2 on Allotment
Rs. 4 on First and Final call.
The company received application for 2,80,000 shares. Pro-rata allotment was made on the
applications for 2,50,000 shares.
Give journal entries assuming that an application who was allotted 100 shares did not pay
allotment, first and final call moneys.

PQ No 14: Refill Limited issued 5,000 shares of Rs. 100 each at par. Money was payable Rs.
30 per share on application; Rs. 50 per share on allotment and the balance on final call.
All money payable was duly received except from Gogo who holds 100 shares did not paid
allotment and final Call money and his shares were forfeited after final call.
Show necessary journal entry for forfeiture of shares.

PQ No 15: Photoprint Ltd. invited applications for 20,000 Equity shares of Rs. 10 each
payable as under:
On applications Rs. 2 per share, on Allotment Rs. 2 per share, on First call Rs. 3 per share,
on Final call Rs. 3 per share
The entire issue was subscribed for and paid with the following exceptions:
(i) P, who was allotted 200 shares, failed to pay the money due on allotment and calls.
(ii) Q, who held 150 shares, did not pay the first call and second call.
(iii) R, who held 50 shares, did not pay the amount on second call.
The Board of Directors passed a Resolution forfeiting all the shares of P, Q and R.
Required: Pass Journal entries to record forfeiture in books of Photoprint Ltd.

PQ No 16: X Ltd. forfeited 300 shares of Rs. 10 each fully called up, held by Ramesh for
non- payment of allotment money of Rs. 3 per share and final call of Rs. 4 per share. He
paid the application money of Rs. 3 per share. These shares were re-issued to Suresh for
Rs. 8 per share. Give necessary journal entries for the forfeiture and re-issue of shares:

PQ No 17: X Ltd. forfeited 200 shares of Rs. 10 each (Rs. 7 called up) on which Naresh had
paid application and allotment money of Rs. 5 per share. Out of these, 150 shares were re-
issued to Mahesh as fully paid up for Rs. 6 per share. Give necessary journal entries for the
forfeiture and re-issue of shares:

PQ No 18: X Ltd. forfeited 100 shares of Rs. 10 each (Rs. 6 called up) issued at par to

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.35

Dimple on which she paid Rs. 2 per share. Out of these, 80 shares were re-issued to Simple
at Rs. 8 per share and called up for Rs. 6 per share. Give necessary journal entries for the
forfeiture and re-issue of shares:

PQ No 19: Bhagwati Ltd. invited applications for issuing 2,00,000 equity shares of Rs. 10
each. The amounts were payable as follows:
On application - Rs. 3 per share
On allotment - Rs. 5 per share
On first and final call - Rs. 2 per share
Applications were received for 3,00,000 shares and pro-rata allotment was made to all the
applicants. Money overpaid on application was adjusted towards allotment money. B, who
was allotted 3,000 shares, failed to pay the first and final call money. His shares were
forfeited. Out of the forfeited shares, 2,500 shares were reissued as fully paid-up @ Rs. 6
per share.
Pass necessary Journal entries to record forfeiture and Reissue in the books of Bhagwati
Ltd.

PQ No 20: Rohit Ltd. was registered with a capital of Rs. 10,00,000 in shares of Rs. 10 each.
It issued a prospectus inviting applications for 10,000 shares payable as follows:
On Application Rs. 4
On Allotment Rs. 3
On First Call Rs. 2
On Second Call Balance
Applications were received for 10,000 shares. All money was duly received except Priyansh
who was allotted 200 shares. Priyansh did not paid allotment money and his subsequent
failure to pay 1st and final call money his shares were forfeited. 180 shares of Priyansh
reissued at Rs 9 per share. Pass the necessary Journal entries for forfeiture and Reissue.

PQ No 21: Band Ltd. invited applications for 50,000 equity shares at Rs.50 each, which are
payable as on application Rs.20, on allotment Rs.10 and on first and final call Rs. 20. The
company received applications for 60,000 shares. The directors accepted application for
50,000 shares and rejected the rest. All money except final call money on 800 shares were
received on due time. Out of 800 shares 600 shares were reissued at Rs. 55 per share as
fully paid up. Show Journal entries for forfeiture and Reissue.

PQ No 22: On 1st October, 2020 Om Limited received applications for 2,50,000 Equity

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue Forfeiture and Reissue of Shares C l a s s N o t e s | 8.36

Shares of Rs. 100 each to be issued at a premium of 25 per cent payable as:
On Application Rs. 25
On Allotment Rs.75 (including premium)
Balance Amount: On final Call
The shares were allotted by the Company on October 20, 2020 and the allotment money
was duly received on October 31, 2020.
Rajni to whom 1000 shares were allotted did not paid final call money and his shares
were forfeited.
Out of Forfeited shares 600 shares were reissued at Rs. 170 per share.
Record journal entries in the books of the company to record the transactions in connection
with the forfeited and reissue of shares.

PQ No 23: Dhaval Ltd issued a prospectus inviting applications for 20,000 shares of
Rs. 10 each at a premium of Rs. 2 per share payable as follows:
on Application Rs. 2, on Allotment Rs. 5 (including premium), on First Call Rs. 3,
on Second & Final Call Rs. 2.
Applications were received for 30,000 shares and pro rata allotment was made on
the applications for 24,000 shares. It was decided to utilise excess Application
Money towards the amount due on allotment.
Ramesh to whom 400 shares were allotted and Mohan, the holder of 600 shares
failed to pay the two calls. These shares were forfeited and Reissued at Rs. 5 per
shares.
Required: Pass the necessary journal entries related to issue, forfeiture and
Reissue of shares.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

 Bonus Issue C l a s s N o t e s | 9.3

JOURNAL ENTRIES
Equity share final call A/c Dr.
(a) For “Equity share final call DUE”
To Equity share capital A/c
Reserves A/c** Dr.
(b) When such Bonus is declared:
To, Bonus to shareholders A/c
Bonus to shareholders A/c Dr.
(c) For final call given away as BONUS
To Equity share final call A/c

**Capital Redemption Reserve and Securities Premium Cannot be used for bonus
dividend

Practical Question

Q No 1: Following items appear in the trial balance of Bharat Ltd. (a listed company) as on
31st March, 2022
1. 40,000 Equity Shares of Rs. 10 each Rs. 4,00,000
2. Capital Redemption Reserve Rs. 30,000
3. Plant Revaluation Reserve Rs. 10,000
4. Securities Premium Account Rs. 35,000
5. General Reserve Rs. 1,00,000
6. Profit & Loss Account Rs. 50,000
7. Capital Reserve (including Rs. 25,000 being Profit on Sale of Machinery) Rs. 75,000
The company decided to issue to equity shareholders bonus shares at the rate of 1 share for
every 4 shares held and for this purpose, it decided that there should be the minimum
reduction in free reserves. Pass necessary journal entries.

Q No 2: Pass Journal Entries in the following circumstances:

(i) A Limited company with subscribed capital of Rs. 5,00,000 consisting of 50,000 Equity
shares of Rs. 10 each; called up capital Rs. 7.50 per share. A bonus of Rs. 1,25,000 declared
out of General Reserve to be applied in making the existing shares fully paid up.
(ii) A Limited company having fully paid up capital of Rs. 50,00,000 consisting of Equity
shares of Rs. 10 each, had General Reserve of Rs. 9,00,000. It was resolved to capitalize Rs.
5,00,000 out of General Reserve by issuing 50,000 fully paid bonus shares of Rs. 10 each,
each shareholder to get one such share for every ten shares held by him in the company.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

 Bonus Issue C l a s s N o t e s | 9.4

Q No 4: The following was the Balance Sheet of Ac Ltd. as on 31st December 2019.
Particulars ₹
EQUITIES & LIABILITIES
Shareholders’ Funds
40,000 Equity Shares of ₹ 10 each. 4,00,000
Securities Premium 1,40,000
General Reserve 70,000
Profit & Loss Account 1,20,000
Non – Current Liabilities
Current Liabilities -
Sundry Creditors 90,000
8,20,000
Assets
Non – Current Assets
Plant & Machinery 3,00,000
Building 2,00,000
Current Assets
Stock 2,20,000
Cash & Bank Balance 1,00,000
8,20,000
Additional Information
The company issued 3 bonus shares for every 4 fully paid-up shares.
Securities premium account will be utilized first.
Show journal entries and balance sheet after bonus issue.

Q No 5: Following are the balances appear in the trial balance of Arya Ltd. as at 31st March,
2021.
Particulars Rs.
Authorised Capital
10,000 12% Preference shares of Rs. 10 each 1,00,000
1,00,000 Equity shares of Rs. 10 each 10,00,000
11,00,000
Issued and Subscribed Capital:
8,000 12% Preference shares of Rs. 10 each fully paid 80,000
90,000 Equity shares of Rs. 10 each, Rs. 8 paid up 7,20,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

 Bonus Issue C l a s s N o t e s | 9.5

Reserves and Surplus:

Capital Redemption Reserve 20,000
General Reserve 1,20,000
Capital Reserve 75,000
Securities Premium 25,000
Profit and Loss Account 1,80,000
Secured Loans:
12% Partly Convertible Debentures @ Rs. 100 each 5,00,000
On 1st April, 2021 the Company has made final call @ 2 each on 90,000 equity shares. The
call money was received by 20th April, 2021. Thereafter the company decided to capitalise
its reserves by way of bonus at the rate of one share for every four shares held. Securities
premium of Rs. 25,000 includes a premium of Rs. 5,000 for shares issued to vendors pursuant
to a scheme of amalgamation. Capital reserves include Rs. 40,0000, being profit on sales of
plant and machinery.
Required: Show necessary entries in the books of the company and prepare the extract of
the Balance Sheet immediately after bonus issue assuming that the company has passed
necessary resolution at its general body meeting for increasing the authorised capital.

Practice Questions [PQ]

PQ No 1: Following was the Balance Sheet of BCC Ltd. as on 31st December 2019.
Equity Shares of ₹ 10 each ₹ 8,00,000
Securities Premium ₹ 2,80,000
General Reserve ₹ 1,40,000
Profit & Loss Account ₹ 2,40,000
Sundry Creditors ₹ 1,80,000
Company issued 3 bonus shares for every 4 fully paid-up shares. Securities premium
account will be utilized first and then General Reserve. Show necessary Journal Entries for
Bonus issue.

PQ No 2: Following are the extracts from the draft Balance Sheet of IPL Ltd.:
Particular ₹
Authorized share capital:
1,50,000 Equity Shares (₹ 10 each) 15,00,000
Issued & paid – up capital:

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

 Bonus Issue C l a s s N o t e s | 9.6

₹ 7.50 each called-up & paid up 6,00,000

Reserves:
Capital Redemption Reserve 1,50,000
Plant Revaluation Reserve 20,000
Securities Premium 1,50,000
Development Rebate Reserve 2,30,000
Investment Allowance Reserve 2,50,000
General Reserve 3,00,000
The company wanted to issue bonus shares to its shareholders @ one share for every two
shares held. All the shareholders paid the call due on their shares. Use general reserve
minimum. Show necessary Journal Entries for Bonus issue.

PQ No 3: Adarsh Ltd. furnishes the following summarized Balance Sheet as at 31st March,
2014:
Amount Amount
Liabilities
(Rs.000) (Rs.000)
Share capital:
Authorised capital 3,000
Issued and Subscribed capital:
2,00,000 Equity shares of Rs. 10 each 2,000
2,000, 10% Preference shares of Rs.100 each 200 2,200
(Issued two months back for the purpose of buy-back)
Reserves and surplus:
Capital Reserve 1,000
Revenue Reserve 3,000
Securities Premium 2,200
Profit and Loss account 4,000 10,200
Current liabilities and provisions 1,400
Total 13,800
Assets
Fixed assets 9,300
Investments 3,000
Current assets, loans and advances (including cash and bank
1,500 13,800
balance)
Total 13,800

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

 Bonus Issue C l a s s N o t e s | 9.7

The company passed a resolution to issue one bonus shares for every one share held to its
equity shareholder. You are required to pass necessary journal entries.

PQ No 4: Following notes pertain to the Balance Sheet of Rahul Ltd. as at 31st March, 2022:
Particulars Rs.
Authorised capital:
15,000 12% Preference shares of Rs. 10 each 1,50,000
1,50,000 Equity shares of Rs. 10 each 15,00,000
16,50,000
Issued and Subscribed capital:
12,000 12% Preference shares of Rs. 10 each fully paid 1,20,000
1,35,000 Equity shares of Rs. 10 each, Rs. 8 paid up 10,80,000
Reserves and surplus:
General Reserve 1,80,000
Capital Redemption Reserve 60,000
Securities premium (collected in cash) 37,500
Profit and Loss Account 3,00,000
On 1st April, 2022, the Company has made final call @ Rs. 2 each on 1,35,000 equity shares.
The call money was received by 20th April, 2022. Thereafter, the company decided to
capitalise its reserves by way of bonus at the rate of one share for every four shares
held. Show necessary journal entries in the books of the company and prepare the
extract of the balance sheet as on 30th April, 2022 after bonus issue.
Solution
Journal Entries in the books of Rahul Ltd.
Date Particular Dr. (Rs.) Cr. (Rs.)
1-4- Equity share final call A/c Dr. 2,70,000
2022 To Equity share capital A/c 2,70,000
(For final calls of Rs. 2 per share on 1,35,000 equity
shares due as per Board’s Resolution dated….)
20-4- Bank A/c Dr. 2,70,000
2022 To Equity share final call A/c 2,70,000
(For final call money on 1,35,000 equity shares received)
Securities Premium A/c Dr. 37,500
Capital Redemption Reserve A/c Dr. 60,000
General Reserve A/c Dr. 1,80,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

 Bonus Issue C l a s s N o t e s | 9.8

Profit and Loss A/c Dr. 60,000

To Bonus to shareholders A/c 3,37,500
(For making provision for bonus issue of one share
for every four shares held)
Bonus to shareholders A/c Dr. 3,37,500
To Equity share capital A/c 3,37,500
(For issue of bonus shares)

Extract of Balance Sheet as at 30th April, 2022 (after bonus issue)

Rs.
Authorised Capital
15,000 12% Preference shares of Rs.10 each 1,50,000
1,68,750 Equity shares of Rs.10 each (refer working note below) 16,87,500
Issued and subscribed capital
12,000 12% Preference shares of Rs.10 each, fully paid 1,20,000
1,68,750 Equity shares of Rs.10 each, fully paid 16,87,500
(Out of above, 33,750 equity shares @ Rs.10 each were issued by way of
bonus)
Reserves and surplus
Profit and Loss Account 2,40,000
Working Notes:
1. Number of Bonus shares to be issued- (1,35,000 shares / 4) X 1 = 33,750 shares
2. The authorised capital should be increased as per details given below:
Rs.
Existing issued Equity share capital 13,50,000
Add: Issue of bonus shares to equity shareholders 3,37,500
16,87,500

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Preference Shares C l a s s N o t e s | 10.3

To Preference Shareholders Account

5. When payment is made to preference shareholders
Preference Shareholders Account Dr.
To Bank Account
6. For adjustment of premium on redemption
Security Premium Ac /Profit and Loss Account Dr.
To Premium on Redemption of Preference Shares Account

Practical Questions

Q No. 1: N Ltd. had 9,000 8% preference shares of ₹ 100 each, fully paid up. The company
decided to redeem these preferences shares at par by the issue of sufficient number of at
par by the issue of sufficient number of equity shares. Show the necessary Journal Entry.

Q No. 2: Hello Ltd. had an issue of 2,000, 10% Redeemable Preference Shares of Rs 100
each, repayable at a premium of 10%. These shares are to be redeemed out of the
accumulated reserves, which are more than the necessary sum required for redemption.
Show the necessary entries in the books of the company, assuming that the premium on
redemption of shares has to be written off against the company’s Securities Premium
Reserves.

Q No. 3: Preference shares amounting to ₹ 2,00,000 are redeemed at a premium of 5%, by

issue of equity shares amounting to ₹ 1,00,000 at a premium of 10%. Show the necessary
Journal Entry.

Q No. 4: The following was the balance sheet of A Ltd. at March 31, 2023.
Particulars (₹)
Equity and Liabilities:
Share capital
Authorized and issued
10,000 Equity shares of the ₹ 10 each 1,00,000
10,000 14% Preference Shares of ₹ 10 each 1,00,000
Revenue Reserve
Profit & Loss Account 45,000
General Reserve 80,000
Taxation Reserve 30,000 1,55,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Preference Shares C l a s s N o t e s | 10.4

Current liabilities 85,000

Total 4,40,000
Assets
Fixed Assets
Plant etc. at cost 1,10,000
Less Depreciation (50,000) 60,000
Current Assets:
Cash at Bank 1,00,000
Debtors 1,40,000
Stock 1,40,000 3,80,000
Total 4,40,000
It was decided to issue further 3,000 equity shares at a premium of ₹ 5 per share and to
redeem at par the redeemable preference shares. Show necessary Journal Entry.

Q No. 5: On 30.6.2019 X Ltd. has 6,750, 11% Preference shares of ₹ 100 each, fully paid-
up. Under the terms of the issue, the preference shares are redeemable on 30.9.2019. To
redeem preference shares it was decided to issue equity shares at ₹ 11 per share payable as
follows:
1. ₹ 2 on applications.
2. ₹ 3.50 (including premium) on allotment and the balance as call money on 1.1.2020.
Issue of equity shares was fully subscribed and allotment was made on 1.9.2019. Amount
due on allotment were received by 25.9.2019. Company does not have any free reserve.
Show the necessary Journal Entry.

Q No. 6: The Balance Sheet of XYZ Ltd. as at 31st December, 2022, inter alia includes the
following information:
₹
50,000, 8% Preference Shares of ₹100 each, ₹70 paid up 35,00,000
1,00,000 Equity Shares of ₹100 each fully paid up 1,00,00,000
Securities Premium 5,00,000
Capital Redemption Reserve 20,00,000
General Reserve 50,00,000
Bank 15,00,000
Under the terms of their issue, the preference shares are redeemable on 31st March, 2022
at 5% premium. In order to finance the redemption, the company makes a rights issue of
50,000 equity shares of ₹ 100 each at ₹ 110 per share, ₹ 20 being payable on application, ₹

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Preference Shares C l a s s N o t e s | 10.5

35 (including premium) on allotment and the balance on 1st January, 2023. The issue was
fully subscribed and allotment made on 1st March, 2022. The money due on allotment were
duly received by 31st March, 2022. The preference shares were redeemed after fulfilling the
necessary conditions of Section 55 of the Companies Act, 2013. You are asked to pass the
necessary Journal Entries.

Q No. 7: The books of B Ltd. showed the following balance on 31st December, 2022:
30,000 Equity Shares of ₹10 each fully paid;
18,000 12% Redeemable Preference Shares of ₹10 each fully paid;
4,000 10% Redeemable Preference Shares of ₹ 10 each, ₹ 8 paid up (all shares issued on 1st
April, 2012).
Undistributed Reserve and Surplus stood as:
Profit and Loss Account ₹ 80,000; General Reserve ₹ 1,20,000; Securities Premium Account
₹ 15,000 and Capital Reserve ₹ 21,000.
For redemption, 3,000 equity shares of ₹10 each are issued at 10% premium. At the same
time, Preference shares are redeemed on 1st January, 2023 at a premium of ₹ 2 per share.
A bonus issue of equity share was made at par, two shares being issued for every five held
on that date out of the Capital Redemption Reserve Account. However, equity shares,
issued for redemption are not eligible for bonus.
Show the necessary Journal Entries to record the transactions.

Q No. 8: The Balance sheet of Shashi LTD., as on 31st March, 2022 is as follows:
Particular ₹ ₹
Equity and Liability
Share Capital:
Issued & fully paid shares
4,000 11% Redeemable Preference Shares of ₹ 100 each 4,00,000
2,000 12% Redeemable Preference of ₹ 100 each ₹ 50 paid up 1,00,000
9,0000 equity shares of ₹10 each 9,00,000 14,00,000
Reserves and Surplus:
Capital redemption reserve 50,000
Securities Premium 50,000
General Reserve 2,00,000
P & L A/c 2,00,000
Dividend Equalization reserve 50,000 5,50,000
Current Liabilities 3,00,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Preference Shares C l a s s N o t e s | 10.6

22,50,000
Assets
Fixed Assets:
Land & Bldg. 10,00,000
Plant 3,00,000
Furniture 20,000 13,20,000
Current Assets:
Stocks 3,00,000
Debtors 1,50,000
Investment 2,80,000 7,30,000
Bank 2,00,000
22,50,000
The company decided to redeem its preference shares at a premium of 5% on 1st April, 2022.
A fresh issue of 10,000 equity shares of ₹10 each was made at ₹ 12 per share payable in full.
These were fully subscribed and all moneys were duly collected. All the investments were
sold realising ₹ 2,70,000. You are required to give the journal entries, including those
relating to cash, to record the above transactions and draw up the balance sheet as would
appear after redemption of preference shares.

Q No. 9: The balance sheet of A Ltd. has 20,000 9% preference share of ₹ 10 each. The
company redeemed preference shares at a premium of ₹ 2 per share. For redemption it
realized investments at a value of ₹ 1,60,000 (Book value ₹ 2,00,000). At the time of
redemption balance in profit & loss account was ₹ 1,60,000.
A Ltd. Issued at a premium of ₹ 40 per share, such a number of equity share of ₹ 100 each
for the purpose of redemption as to ensure that after the compliance with the requirements
of the Companies Act, 2013, the credit balance in profit and loss account would be ₹ 25,000.
Show the necessary Journal Entry for redemption of preference shares.

Practice Questions

PQ No. 1: Hira Ltd. has part of its share capital consisting of 20000, 12% Redeemable
Preference Shares of Rs 100 each, repayable at a premium of 10%. The shares have now
become ready for redemption. It is decided that the whole amount will be redeemed out
of a fresh issue of 20,000 equity shares of Rs 10 each at Rs 15 each. The whole amount is
received in cash and the 12% preference shares are redeemed for the relevant portion.
Show the necessary journal entries in the books of the company.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Preference Shares C l a s s N o t e s | 10.7

Solution:
Journal
Particulars Dr. (Rs) Cr. (Rs)
Bank Dr. 3,00,000
To, Equity Share Application and Allotment A/c 3,00,000
(Application money on 20,000 equity shares @ Rs 15 per share
including a premium of Rs 5 per share)
Equity Share Application and Allotment A/c Dr. 3,00,000
To Equity Share Capital A/c 200,000
To Securities Premium Reserves A/c 100,000
(Allotment of 20,000 equity shares Rs 10 each issued at a
premium of 5 per share as per Board’s Resolution dated. )
12% Redeemable Preference Share Capital A/c Dr. 2,00,000
Premium on Redemption of Preference Share A/c Dr. 10,000
To 12% Preference Shareholders A/c 2,10,000
(Amount due to 12% preference shareholders on redemption of
8% preference shares at a premium of 5%)
Securities Premium Reserves A/c Dr. 10,000
To Premium on Redemption of Preference Shares A/c 10,000
(Application of Securities Premium Account to write off
Premium on Redemption of Preference Shares)
12% Preference Shareholders A/c Dr. 2,10,000
To Bank A/c 2,10,000
(Amount due to 12% preference shareholders on redemption
paid)

PQ No. 2: S Ltd. had 9,000 8% preference shares of ₹ 100 each, fully paid up. The company
decided to redeem these preference shares at par by the issue of sufficient number of equity
shares at ₹ 12 for a premium including ₹ 2. Show the necessary Journal Entry.

PQ No. 3: S Ltd. issued 2,000, 10% Preference shares of ₹ 100 each at par, which are
redeemable at a premium of 10%. For the purpose of redemption, the company issued 1,500
Equity Shares of ₹ 100 each at a premium of 20% per share. Show the necessary Journal
Entry.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Preference Shares C l a s s N o t e s | 10.8

PQ No. 4: Board of directors of a company decided to issue minimum number of equity

shares of ₹ 10 each at par to redeem 4,500 preference shares of ₹ 100 each. Maximum
amount of divisible profit is ₹ 2,50,558.

PQ No. 5: Ledger Accounts of MN Ltd. Show the following balances:

₹
1. 14% Preference Shares (₹100) 5,00,000
2. Capital Reserve 1,00,000
3. Securities Premium Account 1,00,000
4. General Reserve 2,00,000
5. Profit & Loss Account 1,00,000
Preference shares are to be redeemed at 10% premium. Minimum fresh issue of equity shares
of ₹ 100 each is to be made to for the purpose of this redemption. Show the necessary
Journal Entry.

PQ No. 6: Ajay Ltd. decided to redeem 10,000 Preference shares of ₹ 10 each at 10%
premium. Balance in profit & loss account is ₹ 60,000 and in Securities Premium A/c is ₹
10,000. Show the necessary Journal Entry for redemption of preference shares.

PQ No. 7: A Ltd. had 3,000, 12% Redeemable Preference Shares of ₹ 100 each, fully paid
up. The company issued 25,000 equity shares of ₹ 10 each at par and 1,000, 14% Debentures
of ₹ 100 each. Show the necessary Journal Entry for redemption of preference shares.

PQ No. 8: Extract of ledger balances o Kalpana Ltd. includes the following:

₹
1. 12% Preference shares capital 2,00,000
2. Surplus 40,000
3. Securities premium 12,000
Under the terms of issue, the preference shares are redeemable at a premium of 10%. The
directors desire to make a minimum fresh issue of equity shares of ₹ 10 each at premium of
5% for redemption purpose.
Show the necessary Journal Entry for redemption of preference shares.

PQ No. 9: During the year 2005-2006, T Ltd. issued 20,000 12% Preference shares of ₹ 10
each at a premium of 5%, which are redeemable after 4 years at par. During the year 2010
– 2011, as the company did not have sufficient cash resources to redeem the preference

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Preference Shares C l a s s N o t e s | 10.9

shares, it issued 10,000, 14% debentures of ₹ 10 each at a premium of 10%. Show the
necessary Journal Entry at the time of redemption of 12% preference shares.

PQ No. 10:
Jumpers Ltd
Balance Sheet as at 31st March, 2022
I. EQUITY AND LIABILITIES
1. Shareholders’ funds
(a) Share Capital 1 350,000
(b) Reserve & Surplus 2 64,000
2. Current Liabilities
Trade Payable 23,700
Short-term provisions 38,500
TOTAL 4,76,200
II. ASSETS
1. Non-current assets
(a) Fixed Assets
I. Tangible fixed assets 2,25,000
(b) Non-Current Investments 60,000
2. Current Assets
Inventories 1,30,500
Trade receivable 49,550
Cash and cash equivalents 9,950
Other current assets 1,200
TOTAL 4,76,200
Notes
1. Share capital
Authorized Share Capital
40,000 equity shares of Rs 10 each fully paid up 4,00,000
1000, 8% preference shares of Rs 100 each 1,00,000 5,00,000
Issued, Subscribed Called Up And Paid up Share Capital
1000, 10% Preference shares of Rs 100 each fully paid up 1,00,000
25,000 equity shares of Rs 10 each fully paid up 2,50,000 3,50,000
2. Reserve and Surplus
Securities Premium Reserves 9,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Preference Shares C l a s s N o t e s | 10.10

Surplus Account 55,000 64,000

In order to redeem its preference shares, the company issued 5,000 equity shares of Rs.10
each at a Premium of 10% and sold its investment of Rs. 70,800. Preference shares were
redeemed at a premium of 10%.
Show the necessary journal entries in the books of the company.
Solution:
Journal Entries
Particulars Dr. (Rs) Cr. (Rs)
Bank A/c Dr. 55,000
To Equity Share Application and Allotment A/c 55,000
(Application money received on 5,000 equity shares of Rs. 10 at
a premium of 10%).
Equity Share Application and Allotment A/c Dr. 55,000
To Equity Share Capital A/c 50,000
To Securities Premium Reserves A/c 5,000
(Allotment of 5000 equity shares of Rs. 10 each issued at a
premium of 10% as per Board’s resolution dated. )
Surplus A/c Dr. 50,000
To Capital Redemption Reserve A/c 50,000
(Transfer of the balance amount of the nominal value preference
shares to be redeemed not covered by fresh issue, to Capital
Redemption Reserve A/c)
Bank A/c Dr. 70,800
To Investments A/c 60,000
To Surplus A/c 10,800
(Sale on Investments at a profit and transfer of profit on sale to
Profit and Loss A/c)
10% Redeemable Preference Share Capital A/c Dr. 1,00,000
Premium on Redemption of Preference Shares A/c 10,000
To 10% Preference Shareholders A/c 1,10,000
(Amount due to 8% preference shareholders on redemption)
Securities Premium Reserves A/c Dr. 10,000
To Premium on Redemption of Preference Shares A/c 10,000
(Application of securities premium to write off premium on
redemption of preference shares)
10% Preference Shareholders A/c Dr. 1,10,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Preference Shares C l a s s N o t e s | 10.11

To Bank A/c 1,10,000

(Amount due to 10% Preference Shareholders on redemption
paid)

PQ No. 11: XYZ Ltd. has 1,000 Preference Shares (₹ 100 each). Calls -in-Arrear on 100
preference shares is ₹ 2,000. Securities Premium Account, Profit and Loss Account and
General Reserve has a balance of ₹ 12,000; ₹ 29,600 & ₹ 10,000. It was decided to redeem
preference shares at a premium of 20%, by issue of sufficient number of equity shares of ₹
10 each subject leaving balance of ₹ 10,000 in reserve fund. Fixed assets costing ₹ 20,000
were sold for ₹ 18,000. All payments were made except to holders of 50 shares who cannot
be traced. Show the necessary Journal Entry for redemption of preference shares.

PQ No. 12: Following are details of Y Ltd.:

₹
a) 9% Preference Shares 1,00,00,000
b) Call – in – Arrears (on above Preference Shares) 2,00,000
c) General Reserve 60,00,000
d) Securities Premium 18,00,000
e) Development Rebate Reserve 40,00,000
It is ascertained that call – in – arrears are on account of final call on 10,000 shares held by
4 members whose where about not be known. ₹ 10,00,000 of the Development Rebate
Reserve is free for distribution as dividend. Balance of General Reserve & Securities
Premium are to be utilized for the purpose of redemption of and shortfall, if any, is to be
made good by issue of equity shares of ₹ 10 each at a premium of 25% The redemption of
preference shares was duly carried out.
Show the necessary Journal Entry for redemption of preference shares.

PQ No. 13: Following are details of PQR Ltd:

₹
12% Preference shares capital 65,000
Surplus 10,000
Bank balance 31,000
In order to facilitate the redemption of preference shares at a premium of 10% the company
decided:
A. To sell the investments of ₹ 18,500 for ₹ 15,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Preference Shares C l a s s N o t e s | 10.12

B. To finance part of redemption from company funds, subject to, leaving a bank balance
of ₹ 12,000.
C. To issue minimum equity share of ₹ 50 each at a premium of ₹ 10 per share to raise the
balance of funds required.
Show the necessary Journal Entry for redemption of preference shares.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.4

To Capital Reserves A/c (with the amount of discount on buy-back)

6. For transfer of nominal value of shares purchased out of free reserves/securities
premium to Capital Redemption Reserves Account:
Free Reserves A/c Dr. (with the amount transferred)
Securities Premium A/c Dr. (with the amount transferred)
To Capital Redemption Reserves A/c (with the nominal value of shares bought
back)
7. For expenses incurred in buy-back of shares:
Buy-back Expenses A/c Dr. (with the amount of expense)
To Bank A/c
8. For transfer of buy-back expenses:
Profit and Loss A/c Dr. (with the amount of expense)
To buy-back Expenses A/c

Practical Questions

Q No. 1: Directors of Antra ltd. decided to buy back Equity shares amounting to ₹ 2,00,000
at a premium of 5%, by issue of preference shares amounting to ₹ 1,00,000 at a premium
of 10%. Show necessary Journal Entries in the books of Antra Ltd.

Q No. 2: During the year 2018-2019, Chhavi Ltd. buy back 20,000 equity shares of ₹ 100
each at a premium of 5%. During the year 2018-2019, as the company did not have sufficient
cash resources to buy back equity shares, it issued 1,00,000, 12% Preference shares of ₹ 10
each at a premium of 15%. The company has sufficient balance in general reserve. Show
necessary Journal Entries in the books of Chhavi Ltd.

Q No. 3: The following is the Summarized Balance Sheet of M/s. Vriddhi Infra Ltd. as on 31st
March, 2022:
Equity & Liabilities Amount ₹
1. Shareholders Fund
(a) Share Capital: 1,00,000 Equity Shares of ₹10 each fully paid up 1,00,000
(b) Reserve & Surplus
Securities Premium 3,00,000
General Reserve 2,50,000
Profit & Loss Account Surplus 1,50,000
2 Non-Current Liabilities

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.5

Long Term Borrowings:

10% Debentures (Secured by floating charge on all assets) 20,00,000
Unsecured Loans 8,00,000
3 Current Liability & Provisions: Trade Payables 1,20,000
Total 46,20,000
Assets
1. Non-Current Assets
(a) Fixed (Tangible) Assets:
Land & Building 21,50,000
Plant & Machinery 15,00,000
(b) Non-Current Investments 2,00,000
2. Current Assets
(a) Trade Receivables 5,50,000
(b) Inventories 1,80,000
(c) Cash and Cash Equivalents 40,000
Total 46,20,000
On 21st April, 2022 the Company announced the buyback of 25,000 of its equity shares @ ₹
15 per share. For this purpose, it sold all its investment for ₹ 4.50 lakhs. On 25th April, 2022,
the company achieved the target of buy back.
You are requested to pass necessary Journal Entries for the above transactions. All necessary
workings should form part of your answer.

Q No. 4: Following is the balance sheet of Harshita Ltd., as on 31.3.2018:

Particular ₹ in lakhs
I. Equity and Liability
Shareholder’s Fund:
Equity Shares of ₹ 10 each 10.00
General Reserve 2.40
Profit & Loss Account 7.50
Securities Premium 2.80
Secured Loans
Debentures 16.00
Current Liabilities
Sundry Creditors 4.30
43.00

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.6

II. Assets ₹ in lakhs

Non-Current Assets
Fixed Assets 20.40
Non – Trading Investments 4.20
Current Assets:
Stock 4.30
Sunday Debtors 9.10
Cash & Bank Balance 5.00
43.00
The Company bought back 15,000 shares at ₹ 40 each. The transaction in respect of buyback
was financed by sale of 2/3rd of non – trade investment for ₹ 5.90 lakhs. Show important
accounting entries in the books of the Company to record buy-back and also show the
balance sheet after buy-back.

Q No. 5: Following are the extract of balance sheet of Tube Ltd.

₹
Equity Shares of ₹ 10 each 20,00,000
Securities Premium 4,80,000
Reserve 15,00,000
Profit & Loss Account 5,60,000
Bank 18,20,000
Non -Trading Investments 8,40,000
Company brought back 30,000 shares at ₹ 40 each. The transaction in respect of buyback
was financed by sale of 2/3rd of non-trade investments for ₹ 11,80,000. Show necessary
Journal Entries in the books of Tube Ltd.

Calculation of Maximum Permissible Buy Back

Q No. 6: SMM Ltd. has the following capital structure as on 31st March, 2017:
₹ in crore
Particulars Situation A Situation B
(i) Equity share capital (shares of ₹ 10 each) 1,200 1,200
(ii) Reserves:
General Reserves 1,080 1,080
Securities Premium 400 400

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.7

Profit & Loss 200 200

Infrastructure Development Reserve (Statutory Reserve) 320 320
(iii) Loan Funds 3,200 6,000
The company has offered buy back price of Rs. 30 per equity share.
You are required to calculate maximum permissible number of equity shares that can be
bought back in both situations and also required to pass necessary Journal Entries.

Q No. 7: Following is the summarized Balance Sheet of Super Ltd. as on 31st March, 2018.
Liabilities In ₹
Share Capital
Equity Shares of ₹ 10 each fully paid up 17,00,000
Reserves & Surplus
Revenue Reserve 23,50,000
Securities Premium 2,50,000
Profit & Loss Account 2,00,000
Infrastructure Development Reserve 1,50,000
Secured Loan
9% Debentures 22,50,000
Unsecured Loan 8,50,000
Current Maturities of Long-term borrowings 15,50,000
93,00,000
Assets
Fixed Assets
Tangible Assets 58,50,000
Current Assets 34, 50,000
93,00,000
Super Limited wants to buy back 35,000 equity shares of ₹ 10 each fully paid up on 1st April,
2018 at ₹ 30 per share. Buy Back of shares is fully authorised by its articles and necessary
resolutions have been passed by the company towards this. The payment for buy back of
shares will be made by the company out of sufficient bank balance available as part of the
Current Assets. Comment with calculations, whether the Buy Back of shares by the company
is within the provisions of the Companies Act, 2013.

Q No. 8: X Ltd. furnishes the following summarized Balance Sheet as at 31-03-2018.

Liabilities (in ₹) (In ₹)

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.8

Share Capital Equity Share Capital of ₹ 20 each fully paid up 50,00,000

10% Preference Share of ₹ 100 each fully paid up 10,00,000 60,00,000
Reserves & Surplus
Capital Reserve 1,00,000
Security Premium 12,00,000
Revenue Reserve 5,00,000
Profit and Loss 20,00,000
Dividend Equalization Fund 5,50,000 43,50,000
Non-Current Liabilities
12% Debenture 12,50,000
Current Liabilities and Provisions 5,50,000
Total: 1,21,50,000
Assets
Fixed Assets (Tangible Assets) 1,00,75,000
Current Assets
Investment 3,00,000
Inventory 2,00,000
Cash and Bank 15,75,000 20,75,000
Total: 1,21,50,00
The shareholders adopted the resolution on the date of the above-mentioned Balance Sheet
to:
(1) Buy back 25% of the paid-up capital and it was decided to offer a price of 20% over
market price. The prevailing market value of the company’s share is ₹ 30 per share.
(2) To finance the buyback of share company:
(a) Issue 3000, 14 % debenture of 100 each at a premium of 20 %
(b) Issue 2500, 10 % preference share of ₹ 100 each
(3) Sell investment worth ₹ 1,00,000 for ₹ 1,50,000.
(4) Maintain a balance of ₹ 2,00,000 in Revenue Reserve.
(5) Later the company issue three fully paid-up equity share of ₹ 20 each by way of bonus
share for every 15 equity shares held by the equity shareholder.
You are required to pass the necessary journal entries to record the above transactions and
prepare Balance Sheet after buy back.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.9

Practice Questions [PQ]

PQ No. 1: Romiyo Ltd. had 90,000 equity shares of ₹ 100 each, fully paid up. The company
decided to buy-back 10% shares at par by the issue of sufficient number of preference
shares. Company do not have any reserves. Show necessary Journal Entries.

PQ No. 2: Dipti Ltd. decided to buy-back 2,000 equity shares of ₹ 100 each at a premium
of 10%. For the purposes of redemption, the company issued 15,000, 10% Preference shares
of ₹ 10 each at a premium of 20% per share. The company has sufficient balance in profit
& loss account. Show necessary Journal Entries at the time of buy back shares.

PQ No. 3: M Ltd. furnishes the following Balance Sheet as at 31st March, 2022:
Particulars Notes ₹ (in 000)
Equity and Liabilities
1 Shareholders’ funds
A Share capital 1 5,000
B Reserves and Surplus 2 6,310
2 Non-current liabilities
Long term borrowings 3 400
3 Current liabilities
Trade Payables 40
Total 11,750
Assets
1 Non-current assets
A Property, plant and Equipment 4 2,750
B Non-Current Investments (at cost) 5,000
2 Current assets
A Inventories 1,000
B Trade receivables 2,000
C Cash and Cash equivalents 1,000
Total 11,750
Notes to accounts
No. Particulars ₹ in (‘000)
1 Share Capital
Authorized, Issued and Subscribed Capital:

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.10

3,00,000 Equity shares of ₹ 10 each fully paid up 3,000

20,000 9% Preference Shares of 100 each 2,000
Total 5,000
2 Reserves and Surplus
Capital reserve 10
Revenue reserve 4,000
Securities premium 500
Profit and Loss account 1,800
Total 6,310
3 Long term borrowings
10% Debentures 400
4 Property, Plant and Equipment (PPE)
PPE: Cost 3,000
Less: Provision for depreciation (250)
Net carrying value 2,750
The company passed a resolution to buy-back 20% of its equity capital @ ₹ 15 per share. For
this purpose, it sold its investments of ₹30 lakhs for ₹ 25 lakhs. You are required to pass
necessary Journal entries.
Solution
Journal Entries in the books of M Ltd.
Rs. in ‘000

Particulars Dr. Cr.

1. Bank A/c Dr. 2,500
Profit and Loss A/c Dr. 500
To Investment A/c 3,000
(Being investment sold for the purpose of buy-back of
Equity Shares)
2. Equity share capital A/c Dr. 600
Security Premium A/c Dr. 300
To Bank A/c 900
(Being the amount due on buy-back of equity shares)
5. Revenue reserve A/c Dr. 600
To Capital Redemption Reserve A/c 600
(Being creation of capital redemption reserve to the
extent of the equity shares bought back)

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.11

PQ 4: Following are the extract of balance sheet of Light Co. Ltd.

₹
Equity Shares of ₹ 10 each 10,00,000
Securities Premium 2,40,000
Reserve 7,50,000
Profit & Loss Account 2,80,000
Bank 9,10,000
Non -Trading Investments 4,20,000
Company brought back 15,000 shares at ₹ 40 each. The transaction in respect of buy-back
was financed by sale of 2/3rd of non-trade investments for ₹ 5,90,000.
Pass journal entries relating to above transactions in the books of the company.

PQ No. 5:
ALLUWALIA Ltd.
Balance Sheet as at 31st March, 2023
Particular Note No. Amount (Rs.)
I. EQUITIES AND LIABILITIES
1. Shareholders’ funds
(a) Share Capital 1 10,00,000
(b) Reserve & Surplus 2 7,05,000
2. Non-Current Liability
Long-term borrowings 4,00,000
3. Current Liability
Trade payables 3 60,000
TOTAL 21,65,000
II. ASSETS
1. Non-current assets
(a) Fixed Assets
(i) Tangible fixed assets 4 13,30,000
(b) Non-Current Investment 1,50,000
2. Current Assets
Inventories 1,00,000
Trade receivables 1,00,000
Cash and cash equivalents Balance 4,85,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.12

TOTAL 21,65,000
Notes
1. Share Capital
Authorized Share Capital
Issued, Subscribed Called-Up and Paid-Up Share Capital:
1,00,000 shares of Rs. 10 each fully paid-up 10,00,000
2. Reserve and Surplus
Securities Premium 2,00,000
General Reserve 5,05,000 7,05,000
3. Long-term borrowings
14% Debentures 4,00,000
4. Tangible Fixed assets
Land-building 9,30,000
Plant and machinery 3,50,000
Furniture and fitting 50,000 13,30,000
On 1st April, 2023 the shareholders of the company have approved the scheme of buy-back
of equity shares as under:
(i) 5% of the equity shares would be bought back at Rs 15.
(ii) 12% Debentures to be issued for Rs 10,000 to finance for the buy-back, and balance from
the General reserve may be utilized for this purpose.
(iii) Premium paid on buy-back of shares should be met from securities premium account.
(iv) Investments would be sold for Rs 275,000.
Pass journal entries to record the above transactions and prepare the balance sheet of the
company immediately after the buy-back of shares.
Solution:
Alluwalia Ltd.
Journal Entries
Particulars Dr. (Rs) Cr. (Rs)
Bank A/c Dr. 275,000
To Investments A/c 150,000
To Profit and Loss A/c 125,000
(Sale of investments, the profit being transferred to profit and loss
account as per shareholders special resolution)
Shareholders A/c Dr. 75,000
To Bank A/c 75,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.13

(Purchase of 5,000 of own shares @ Rs 15 each)

Equity Share Capital A/c Dr. 50,000
Securities Premium A/c Dr. 25,000
To Shareholders A/c 75,000
(Cancellation of 5,000 equity shares bought back, and securities
premium utilized as per shareholders’ special resolution)
General Reserve A/c Dr. 40,000
To Capital Redemption Reserve A/c 40,000
(Transfer of general reserve utilized to the extent of nominal value
of shares bought back)
Bank A/c Dr. 10,000
To 12% Debentures A/c 10,000
(Issue of 12% Debentures to partly finance the buy-back)
Alluwalia Ltd.
Balance Sheet (After Buy-back) as at 1st April, 2023
Particular Note No. Amount (Rs.)
I. EQUITIES AND LIABILITIES
1. Shareholders’ funds
(a) Share Capital 1 950,000
(b) Reserve & Surplus 2 805,000
2. Non-Current Liability (Long-term borrowings) 3 410,000
3. Current Liability (Trade payables) 60,000
TOTAL 22,25,000
II. Assets
1. Non-current assets
(a) Fixed assets
(i) Tangible fixed assets 13,30,000
2. Current Assets
Stock 1,00,000
Sundry debtors 1,00,000
Cash and Cash equivalents 6,95,000
TOTAL 22,25,000
Notes
1. Share Capital
Authorized Share Capital

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.14

Issued, Subscribed Called Up and Paid-up Share Capital

95,000 shares of Rs. 10 each fully paid up 9,50,000
2. Reserve and Surplus
Securities Premium 1,75,000
General Reserve 4,65,000
Capital Redemption Reserve 40,000
Profit and Loss Account 1,25,000 8,05,000
3. Long-term borrowings
14% Debentures – 400,000
12%Debentures- 10,000 4,10,000
Note: The debt-equity ratio of the company after buy-back of shares:
Debt-equity ratio = Debt/ Equity (Capital and free reserves)
= (410000 + 60000) / (950,000 + 175,000 + 465,000 + 125,000)
= 0.274 : 1
The debt equity ratio is within the limit.

PQ 6: The following is the balance sheet of ABC Ltd. as on 31.3.2019:

Particular ₹
Equities & Liabilities
Shareholder’s Fund:
Equity Shares of ₹ 10 each 50,00,000
General Reserve 15,00,000
Profit & Loss Account 1,00,000
Securities Premium 1,00,000
Secured Loans
10% Debentures 4,00,000
Current Liabilities
Sundry Creditors 7,00,000
Bills Payable 3,00,000
81,00,000
Assets ₹
Non-Current Assets
Fixed Assets 50,00,000
Investments 5,00,000
Current Assets:

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.15

Cash & Bank Balance 6,00,000

Stock 5,00,000
Debtors 15,00,000
81,00,000
The company decided to buy back 1,00,000 equity shares of ₹ 10 each at 25% premium.
For this purpose, the company:
(a) Sold the entire investment at ₹ 6,00,000
(b) Made a fresh issue of 10% preference shares of ₹ 100 each to the extent minimum after
utilizing the securities premium account had half of general reserve.
You are required to:
1. Pass journal entries relating to above transactions in the books of the company.
2. Prepare balance sheet after buy back.
3. Calculate post buy back debt equity ratio.

PQ 7: X Ltd. proposes to buy-back ₹ 6,00,000 equity capital at 50% premium by issuing

2,000 14% preference shares of ₹ 100 each at 20% premium.
It has balance in Securities Premium, General Reserve and P&L A/c of ₹ 3,50,000; ₹
9,30,000 & ₹ 48,000 respectively.
For this purpose, it sold all of its investments of ₹ 1,48,000 for ₹ 1,50,000.
The company wants to keep balance of 6,00,000 in general reserve. Show necessary Journal
Entries in the books of X Ltd.

PQ 8: ABC Ltd. had paid-up equity capital of 10,00,000 equity shares of ₹ 10 each fully
paid-up. Position of reserve is as follows:
General Reserve = ₹ 30,00,000
Profit and Loss Account = ₹ 2,00,000
Securities Premium = ₹ 2,00,000
Company decided to buy-back 2,00,000 equity shares of ₹ 10 each at 25% premium. For this
purpose, the company sold the entire investment at ₹ 12,00,000 (book value ₹ 10,00,000)
and made a fresh issue of 10% preference shares of ₹ 100 each to the extent minimum after
utilizing the securities premium account and half of general reserve. Show necessary
Journal Entries in the books of ABC Ltd. so that provisions of the Companies Act,2013 get
complied.

PQ 9: Board of directors of G Ltd. decided to buy back ₹ 4,50,000 equity share capital at a
premium of 10%. Balance of General Reserve & Securities Premium are ₹ 1,00,000 & ₹

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.16

5,000. It was decided to issue 12% redeemable preference shares of ₹ 10 each for the
purpose of buy-back of equity shares as minimum as possible. Show necessary journal
entries in the books of company.

PQ 10: Paid-up equity shares capital of ABC Ltd. is ₹ 50,00,000 having face value of ₹ 10
each fully paid -up. Other details:
General Reserve = ₹ 15,00,000
Capital Redemption Reserve = ₹ 4,00,000
Profit & Loss Account = ₹ 1,00,000
Statutory reserve = ₹ 6,40,000
Securities Premium = ₹ 1,00,000
The board of directors passed resolution in board meeting to buy-back maximum number
of shares as allowed by law. Calculate no. of shares to be bought back and pass journal
entries relating to above transactions in the books of the company.

PQ 11: A Ltd. has equity share capital of ₹ 4,95,000 (₹ 10 each fully paid-up). Details of its
reserve & loan funds are given below:
₹
General Reserve 3,60,000
Securities Premium Account 1,35,000
Profit & Loss Account 1,35,000
Export Profit Reserve 2,70,000
Loan Funds 18,00,000
Market price is ₹ 25 per share. The company wants to buy back maximum number of shares
that are allowed under the Companies Act, 2013 at price 20% higher than its market price.
Expert Profit Reserve is created to satisfy provisions of the Income Tax Act, 1961
requirements.
You are required to compute the maximum number of shares that can be brought back in
the light of the above information.

PQ 12: BABA Ltd. has equity share capital of ₹ 6,60,000 (₹ 10 each fully paid-up). Details
of its reserve & loan funds are given below:
₹
General Reserve 4,80,000
Securities Premium Account 2,00,000
Profit & Loss Account 1,60,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.17

Loan Funds 30,00,000

Market price is ₹ 25 per share. The company wants to buy-back maximum number of shares
that are allowed under the Companies Act, 2013 at price 20% higher than its market price.
You are required to compute the maximum number of shares that can be brought back in
the light of the above information.

PQ 13: ZPA Ltd. has equity share capital of ₹ 13,20,000 (₹ 10 each fully paid-up). Details
of its reserves & loan funds are given below:
₹
General Reserve 9,60,000
Securities Premium Account 4,00,000
Profit & Loss Account 3,20,000
Loan Funds 12,00,000
The company wants to buy back maximum number of shares that are allowed under the
Companies Act, 2013 at price of ₹ 25.
You are required to compute the maximum number of shares that can be brought back in
the light of the above information.

PQ 14: NSZ Ltd. (a non-listed company) has the following capital structure as on 31.3.2019:
Particular (₹ in Crore)
(1) Equity Share Capital (Shares of ₹ 10 each fully paid) 330
(2) Reserve & Surplus
General Reserve 240
Securities Premium Account 90
Profit & Loss Account 90
Infrastructure Development Reserve 180
(3) Loan Funds 1,800
The shareholders of NSZ Ltd., on the recommendation of their Board of Directors, have
approved on 12.9.2019 a proposal to buy back the maximum permissible number of equity
shares considering the large surplus funds available at the disposal of the company:
The prevailing market value of the company’s shares is ₹ 25 per share and in order to induce
the existing shareholders to offer their shares for buy back, it was decided to offer a price
of 20% over market.
You are also informed that the Infrastructure Development Reserve is created to satisfy
Income Tax Act, 1961 requirements.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Buy Back of Equity Shares C l a s s N o t e s | 11.18

You are required to compute the maximum number of shares that can be brought back in
the light of the above information and also under a situation where the loan funds of the
company were ₹ 1,200 Crore, ₹ 1,500 Crore.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Employees Stock Option Plan (ESOP) C l a s s N o t e s | 12.3

Rule 12(11) specifically provides that, where the equity shares of the company are listed on
a recognized stock exchange, the Employees Stock Option Scheme shall be issued in
accordance with the regulations made by Securities and Exchange Board of India.

Practical Question

Vesting Period is less than 1 year

Q No. 1: Aarshi Ltd. has its share capital divided into shares of ₹ 10 each. On 1st April, 2021
it granted 10,000 employees’ stock options at ₹ 40, when the market price was ₹ 130. The
options were to be exercised between 15th March, 2022 and 31st March, 2022. The
employees exercised their options for 9,500 shares only; the remaining options lapsed. The
company closes its books on 31st March every year. Show Journal Entries.

Q No. 2: On 1st April, 2021, Eally Ltd. offered 100 shares to each of its 500 employees at ₹
50 per share. The employees are given a year to accept the offer. The shares issued under
the plan shall be subject to lock-in on transfer for three years from the grant date. The
market price of shares of the company on the grant date is ₹ 60 per share. Due to post-
vesting restrictions on transfer, the fair value of shares issued under the plan is estimated
at ₹ 56 per share. On 31st March, 2022, 400 employees accepted the offer and paid ₹ 50 per
share purchased. Nominal value of each share is ₹ 10. Record the issue of share in the books
of the company under the aforesaid plan.

Vesting Period is more than 1 year

Q No. 3: ABC Ltd. grants 1,000 employees stock options on 1.4.2019 at ₹ 40, when the
market price is ₹ 160. The vesting period is 2½ years and the maximum exercise period is
one year. 300 unvested options lapses on 1.5.2021. 600 options are exercised on 30.6.2022.
100 vested options lapses at the end of the exercise period. Pass Journal Entries giving
suitable narrations.

Q No. 4: Ajanta grants 120 share options to each of its 460 employees. Each grant is
conditional on the employee working for Ajanta over the next three years. Ajanta has
estimated that the fair value of each share option is ₹ 12. Ajanta estimates that 25% of
employees will leave during the three-year period and so forfeit their rights to the share
options. Everything turns out exactly as expected.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Employees Stock Option Plan (ESOP) C l a s s N o t e s | 12.4

Required: Calculate the amounts to be recognized as expense during the vesting period and
show necessary journal Entry.

Practice Question

PQ No. 1: X Ltd. has its share capital divided into equity shares of ₹ 10 each. On 1.1.2020
it granted 20,000 employees stock option at ₹ 50 per share, when the market price was ₹
120 per share. The options were to be exercised between 15.3.2020 & 31.3.2020. The
employees exercised their options for 16,000 shares only and the remaining options lapsed.
The company closes its books on 31st March every year. Give journal entries related to issue
of shares under the plan.

PQ No. 2: A company has its share capital divided into shares of ₹ 10 each. On 1.1.2016, it
granted 5,000 employees stock option at ₹ 50, when the market price was ₹ 140. The options
were to be exercised between 1.3.2017 to 31.3.2017. The employees exercised their options
for 4,800 shares only; remaining options lapsed. Record necessary journal entries in the
books of company.

PQ No. 3: X Ltd. has its share capital divided into equity shares of ₹ 10 each. On 1.1.2020
it granted 20,000 employees stock option at ₹ 50 per share, when the market price was ₹
120 per share. The options were to be exercised between 15th March, 2020 and 31st March,
2020. The employees exercised their options for 16,000 shares only said and the remaining
options lapsed. The company closes its books on 31st March every year. Show Journal entries
with narration as would appear in the books of the company up to 31st March, 2020.

PQ No. 4: On 1st April, 2019, a company offered 100 shares to each of its 400 employees at
₹ 25 per share. The employees are given a month to accept the shares. The shares issued
under the plan shall be subject to lock -in to transfer for 3 years from the grant. Due to
post-vesting restrictions on transfer, the fair value of shares issued under the plan is
estimated at ₹ 28 per share.
Up to 31st March, 2020, 70% of employees accepted the offer and paid ₹ 25 per share
purchased. Nominal value of each share is ₹ 10. Record the issue of shares in the books of
the company under the aforesaid plan.

PQ No. 5: On 1.4.2019, a company offered 300 shares to each its 1,200 employees at ₹ 75
per share. The employees are given a month to accept the shares. The shares issued under

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Employees Stock Option Plan (ESOP) C l a s s N o t e s | 12.5

the plan shall be subject to lock-in to transfer for 3 years from the grant date i.e. 01.4.2019.
Market price of shares on the grant date is ₹ 90 per share. Due to post-vesting restrictions,
fair value of shares issued under the plan is estimated at ₹ 84 per share. Up to 30.4.2019,
50% of employees accepted the offer and paid ₹ 75 per share. Face value of share is ₹ 10.
Show necessary Journal Entries in the books of company.

PQ No. 6: S Ltd. grants 1,000 options to its employees on 1.4.2010 at ₹ 60. The vesting
period is 2.5 years. The maximum exercise period is 1 year. Market price on that date is ₹
90. All the options were exercised on 31.7.2014. Journalize, if the face value of equity share
is ₹ 10 per share.

PQ No. 7: Arhant Limited has its share capital divided into equity shares of ₹ 10 each. On
01-10-2021, it granted 20,000 employees’ stock options at ₹ 50 per share, when the market
price was ₹ 120 per share. The options were to be exercised between 10th December, 2021
and 31st March, 2022. The employees exercised their options for 16,000 shares only and the
remaining options lapsed. The company closes its books on 31st March every year. Show
Journal Entries (with narration) as would appear in the books of the company upto 31st
March, 2022.
Answer:
Journal Entries in the books of Arhant Ltd.
Date Particular L.F. ₹ ₹
10.12.21 Bank A/c (16,000 x 50) Dr. 8,00,000
to Employee compensation expense A/c Dr. 11,20,000
31.3.22 (16,000 x 70)
To Equity share capital A/c (16,000 x 10) 1,60,000
To Securities premium A/c (16,000 x 110) 17,60,000
(Being shares issued to the employees against
the options vested to them in pursuance
of Employee Stock Option Plan)
31.3.22 Profit and Loss A/c Dr. 11,20,000
To Employee compensation expense A/c 11,20,000
(Being transfer of employee compensation
expenses to Profit and Loss Account)

PQ No 8: Raman Ltd. granted 1000 options on April 01, 2018 at Rs. 40 (nominal value Rs. 10
each) when the market price was Rs. 120, and the vesting period was 2.5 years. The

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Employees Stock Option Plan (ESOP) C l a s s N o t e s | 12.6

maximum exercise period was one year. On Oct 1, 2020, 200 unvested options lapsed and
600 options were exercised. On 30th Oct, 2021 remaining 200 options lapsed at the end of
exercise period. Pass necessary journal entries.
Solution:
In the Books of Raman Ltd.
Journal Entries
Date Particulars Amount Amount
(Rs.) (Rs.)
2018 Deferred Employee Compensation Expense A/c Dr. 80,000
April To Employee Stock Options Outstanding A/c 80,000
1 (Being grant of 1,000 options at a discount of Rs. 80, i.e.,
Rs. 120 - Rs.40)
2019 Employee Compensation Expense A/c 32,000
March To Deferred Employee Compensation Expense A/c 32,000
31 (Being amortization of Deferred Compensation, i.e., Rs.
80,000 / 2.5)
2020 Employee Compensation Expense A/c 32,000
March To Deferred Employee Compensation Expense A/c 32,000
31 (Being amortization of Deferred Compensation, i.e., Rs.
80,000 / 2.5)
2020 Employee Stock Options Outstanding A/c 16,000
Oct 1 To Employee Compensation Expense A/c 12,800
[(200 * Rs.80) * 2/2.5]
To Deferred Employee Compensation Expense A/c 3,200
[(200 * Rs.80) * 0.5/2.5]
(Being reversal of compensation accounting on lapse of
200 unvested options)
2020 Employee Compensation Expense A/c 12,800
Oct 1 To Deferred Employee Compensation Expense A/c 12,800
(Being amortization of Deferred Compensation)
(800*80*0.5/2.5)
2020 Bank A/c (600 *40) 24,000
Oct 1 Employee Stock Options Outstanding A/c Dr. 48,000
[Rs. 600 * (Rs. 120 - Rs. 40)]
To Equity Share Capital A/c (600 * 10) 6,000
To Securities Premium A/c 66,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Employees Stock Option Plan (ESOP) C l a s s N o t e s | 12.7

[Rs.600 *(Rs. 120 - Rs. 10)]

(Being excise of 600 options at an excise price of Rs. 20
each and an accounting value of Rs. 60 each)
2021 Employee Stock Options Outstanding A/c Dr. 16,000
Oct. To Employee Compensation Expense A/c 16,000
30 (Being reversal of compensation accounting on lapse of
200 vested options at the end of the excise period i.e.,
Rs.200 * 80)

PQ No. 9: Reliance Ltd. grants 1,000 employees stock options on 1.4.2012 at ₹ 40, when
market price is ₹ 160. The vesting period is 2.5 years and maximum exercise period is 1
year. 300 unvested options lapsed on 31.3.2014. 600 options are exercised on 30.6.2015.
100 vested options lapsed at the end of the exercise period.

PQ No. 10: On 1.4.2019, GP Ltd. offered 100 shares to each of its 500 employees at ₹ 25
per share. Employees are given a year to accept the offer. Shares issued under the plan shall
be subject to lock-in on transfer for 3 years from the grant date. Market price of shares on
the grant date is ₹ 60 per share. Due to post-vesting restrictions on transfer, the fair value
of shares issued under the plan is estimated at ₹ 56 per share. The vesting period is 3 years
and maximum exercise period is 1/2 year. 500 unvested options lapsed on 31.3.2020, 1000
unvested options lapsed on 31.3.2021. On 30.9.2022, 300 employees accepted the offer and
paid ₹ 50 per share. Remaining vested options lapsed at the end of the exercise period.
Show necessary Journal Entries for aforesaid plan.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Underwriting C l a s s N o t e s | 13.6

Practical Question

Q No. 1: Cybertech Ltd. issued 1,00,000 shares for public subscription and these were
underwritten by A, B and C in the ratio of 25%, 30% and 45% respectively. Applications were
received for 80,000 shares and of these applications for 16,000 shares had the stamp of A,
those for 20,000 shares had the stamp of B and those of 24,000 shares had the stamp of C.
The remaining applications did not bear any stamp. Calculate Net liability of underwriters.

Q No. 2: Lillies Ltd. issued 1,00,000 equity shares, where the issue was underwritten by 3
underwriters as follows:
A 40%; B 30%; C 30%.
Applications for 60,000 shares were received in all, out of which applications for 20,000
shares had the stamp of A; those for 10,000 shares that of B and those for 20,000 shares
that of C. The remaining applications for 10,000 shares did not bear any stamp.
Determine the liability of the underwriters.

Q No. 3: Sunflow Ltd. issued 50,000 equity shares. The whole of the issue was underwritten
as follows: Red 40%; White 30%; Blue 30%
Applications for 40,000 shares were received in all, out of which applications for 10,000
shares had the stamp of Red; those for 5,000 shares that of White and those for 10,000
shares that of Blue. The remaining applications for 15,000 shares did not bear any stamp.
Determine the liability of the underwriters.

Q No. 4: Emess Ltd. issued 40,000 shares which were underwritten as:
P: 24,000 shares Q: 10,000 shares and R: 6,000 shares.
The underwriters made applications for firm underwriting as under:
P: 3,200 shares; Q: 1,200 shares; and R: 4,000 shares.
The total subscriptions excluding firm underwriting (including marked applications) were
20,000 shares.
The marked applications were –
P: 4,000 shares; Q: 8,000 shares; and R: 2,000 shares.
Prepare a statement showing the net liability of underwriters.

Q No. 5: Meenu Ltd. has authorized capital of ₹ 50,00,000 divided into 1,00,000 equity
shares of ₹ 50 each. The company issued for subscription 50,000 shares at a premium of ₹
10 each. The entire issue was underwritten as follows:

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Underwriting C l a s s N o t e s | 13.7

A. – 30,000 shares (firm underwriting – 5,000 shares)

B. – 15,000 shares (firm underwriting – 2,000 shares)
C. – 5,000 shares (firm underwriting - 500 shares)
Out of the total issue, 45,000 shares including firm underwriting were subscribed. The
following were the marked forms:
A. – 16,000 shares
B. – 10,000 shares
C. – 4,000 shares
Calculate the liability of each underwriter:

Q No. 6: LPG Ltd. issued 32,000 shares which were underwritten as follows:
A: 19,200 shares; B: 8,000 shares C:4,800 shares.
The underwriters made applications for firm underwriting as -
A: 2,560 shares; B: 960 shares C: 3,200 shares.
Details of marked applications are –
A: 3,200 shares; B: 6,400 shares C: 1,600 shares.
Unmarked applications are for 11,520 shares.
Find out the net liability of individual underwriters.

Q No. 7: S Ltd. issued 1,50,000 equity shares of ₹ 100 each at per. This issue was
underwritten equally by A, B and C. Applications for 1,40,000 shares were received as per
details given below:
Underwriter Applications
Firm Marked
A 5,000 40,000
B 5,000 46,000
C 3,000 34,000
Unmarked applications are of 7,000 shares. It was agreed to credit the unmarked
applications to A and C.
Determine net liability of each underwriter
(i) If firm underwriting shares are treated as unmarked applications
(ii) If firm underwriting shares are treated as marked application

Q No. 8: K Ltd. issued for subscription 25,000 shares at a premium of ₹ 10 each. The issue
was underwritten as follows:
A: 15,000 shares; B: 7,500 shares C:2,500 shares.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Underwriting C l a s s N o t e s | 13.8

Firm applications are as follows:

A: 2,500 shares; B: 1,000 shares C: 500 shares.
Out of the total issue, 22,500 shares including firm underwriting were subscribed.
Marked forms details:
A: 8,000 shares; B: 5,000 shares C: 2,500 shares.
Determine the net liability of each underwriter in shares if:
(i) If firm underwriting shares are treated as unmarked applications
(ii) firm underwriting shares are treated as marked applications

Q No. 9: Sam Limited invited applications from public for 1,00,000 equity shares of Rs 10
each on a premium of X 5 per share. The entire issue was underwritten by the underwriters
Anita, Babita, Chavi and David to the extent of 30%, 30%, 20% and 20% respectively with the
provision of firm underwriting of 3,000, 2,000, 1,000 and 1,000 shares respectively.
The underwriters were entitled to the maximum commission permitted by law.
The company received applications for 70,000 shares from public out of which applications
for 19,000, 10,000; 21000 and 8,000 shares were marked in favour of Anita, Babita, Chavi
and David respectively.
Calculate the liability of each one of the underwriters. Also ascertain the underwriting
commission @ 2.5% payable to the different underwriters and also give necessary journal
entry related to underwriter.

Q No. 10: Ramona Ltd., issued 50,000 equity shares of which only 60% was underwritten by
Green. Applications for 45,000 shares were received in all out of which application for
26,000 were marked.
Determine the liability of Green.

Q No. 11: NZ Ltd issued 34,000 shares of ₹ 100 at a premium of ₹ 15 each. 90% of the issue
was underwritten by M/S Broker & Co. Applications were received for 27,200 shares and
allotment was fully made. Calculate the Net liability of underwriter.

Q No. 12: X Ltd. entered into an underwriting agreement with Y Ltd. for commission of
2.5% for 60% of the issue of ₹ 50,00,000, 15% Debentures with a firm underwriting of ₹
5,00,000. Marked applications were for ₹ 35,000 debenture. Calculate Net liability of
underwriter.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Underwriting C l a s s N o t e s | 13.9

Practice Question

PQ No. 1: Sampada Ltd. was formed with a capital of 2,00,000 equity shares of ₹ 10 each.
All shares were issued to public for subscription. Issue was underwritten as follows:
Ajay: 80,000 shares, Bijo:60,000 shares Rajat: 60,000 shares.
Marked applications were received in favour of Ajay for 32,000 shares, Bijo for 58,000 shares
and Rajat for 42,000 shares. Applications for 30,000 shares were not marked.
Calculate Net liability of underwriters.

PQ No. 2: Sun Ltd. issued 1,00,000 equity shares. Whole of the issue was underwritten as
follows:
M: 35%; L: 25%, T: 30%; P: 10%
Application for 80,000 shares were received in all; out of which applications for 20,000
shares had the stamp of M: 15,000 that of L; 22,000 that of T and 8,000 of P. Remaining
15,000 applications did not any bear stamp.
Determine the liability of each underwriter.

PQ No. 3: Airlinks Ltd. made a public issue of 2,50,000 equity shares of ₹ 10 each, the entire
amount payable on application. The entire issue was underwritten as follows:
Red – 30%, Yellow – 25%, Green – 25%, and White – 20% of public issue respectively.
Red, Yellow, Green and White had also agreed on firm underwriting 8,000, 12,000, Nil and
30,000 shares respectively.
The total subscriptions excluding firm underwriting, including marked application were
1,80,000 shares. The marked application received were as under:
Underwriter No. of shares
Yellow 48,000
Green 40,000
White 48,000
Ascertain the net liability of each underwriter:

PQ No. 4: NS Ltd. issued 20,000 shares were underwritten as follows:

A – 12,000 shares, B – 5,000 shares C- 3,000 shares.
The underwriters made applications for firm underwriting as:
A – 1,600 shares, B - 600 shares, C- 2,000 shares.
The total subscriptions excluding firm underwriting but including marked application were
for 10,000 shares.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Underwriting C l a s s N o t e s | 13.10

Marked Applications from each of underwriter is as follows

A- 2,000 shares, B – 4,000 shares, C - 1000 shares.
You are required to find out the liability of individual underwriters on the assumption that:
(i) Firm under writing shares are treated as unmarked applications.
(ii) Firm under writing shares are treated as marked applications.

PQ No. 5: Binsar Ltd. issued 12% 10,000 Preference Shares of Rs 10 each. The issue was
underwritten as follows:
Apple 30%, Mango 30%, Orange 20%.
Application for 8,000 shares were received by the company in all.
Determine the liability of the respective underwriters.
Solution:
Apple Mango Orange
Particulars Total Ratio
(30%) (30%) (20%)
Gross liability (in the agreed ratio) 8,000 [Link] 3,000 3,000 2,000
Less: Un-Marked application (8,000) [Link] 2,400 2,400 1,600
Net liability 600 600 400

PQ No. 6: MMW Ltd. made an issue of 47,000, 10% mortgage debentures of ₹ 100 each at
par. The whole of the issue was underwritten by Y & Co. 39,950 debentures were applied
for and allotted to the public. Calculate Net liability of underwriter to take number of
debentures.

PQ No. 9: ABC Ltd. issued 30,000, 6% debentures of Rs. 100 each. 60% of the issue was
underwritten by Delton.
Applications for 28,000 (out of which 60% is marked) debentures were received by the
company. Determine the liability of Delton.
Solution:
Gross liability of Delton being 60% of 30,000 debentures = = 18,000 debentures
Less: Marked applications (60/100 x 28,000) = 16,800 debentures
Net liability of Delton = 1,200 debentures
Alternatively, Delton’s liability can be determined in the following way:
Number of debentures not subscribed for by the public = (30,000 - 28,000) = 2,000
debentures
Delton’s liability = 60% of 2,000 debentures = 1,200 debenturs

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.9

(iii) On payment of income-tax to the Government

Income-tax Payable A/c Dr. (with the amount of TDS)
To Bank A/c
(iv) On transfer of Debenture Interest to Profit and Loss Account at the end of the
year
Profit and Loss A/c Dr. (with the gross amount of interest on debentures)
To Debenture Interest A/c

Practical Question

Q No. 1: Yash Ltd. issued 10,000, 12% Debentures of ₹ 100 each at per payable in full on
application by 1st April, 2019. Application were received for 11,000 Debenture. Debenture
were allotted on 7th April, 2019. Excess money was refunded. You are required to pass
necessary journal entries in the books of the company.

Q No. 2: Priya Ltd. issued 10,000, 12% Debentures of ₹ 100 each at a premium of 10% payable
in full on application by 1st March, 2019. The issue was fully subscribed and debentures were
allotted on 9th March, 2019. You are required to pass necessary journal entries in the books
of the company.

Q No. 3: Nikhil Ltd. issued 10,000, 12% Debentures of ₹ 100 each at a discount of 10% payable
in full on application by 31st May, 2019. Application were received for 12,000 debentures.
Debentures were allotted on 9th June 2019. Excess monies were refunded on the same date.
You are required to pass necessary journal entries (including cash transactions) in the books
of the company.

Q No. 4: Z Ltd. issued 5,000, 14% debentures of Rs 100 each at a discount of 5%, the discount
being adjustable on allotment. The debentures were payable as follows:
On Application - Rs. 20
On Allotment - Rs. 25
On First and Final Call - Rs. 50
The debentures were fully subscribed and the money was duly received.
Show the cash book and journal entries and prepare the balance sheet of the company.

Q No. 5: Kakloo Ltd issues Rs 1000, 15%, 5,000 debentures on which amount payable is Rs
200 on application, Rs 300 on allotment and balance on first call. In addition, the company

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.10

offers 1,000 – 12% second mortgage debentures of Rs 1000 each. In case of 15% debentures,
the company received applications for 6200 debentures and the directors made pro-rata
allotment and excess money was refunded. Journalise.

Q No. 6: Give Journal entries for the following:

1. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at par and redeemable at par.
2. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at premium of 5% but redeemable
at par.
3. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at discount of 5% repayable at par.
4. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at par but repayable at a premium
of 5%.
5. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at discount of 5% but redeemable
at premium of 5%.
6. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at premium of 5% and redeemable
at premium of 5%.

Q No. 7: You are required to pass the journal entries relating to the issue of the debentures
in the books of X Ltd., under the following cases:
(a) 120, 8% debentures of Rs. 1,000 each are issued at 5% discount and repayable at par.
Balance in Securities Premium Reserve is Rs. 10,000.
(b) 150, 7% debentures of Rs. 1,000 each are issued at 5% discount and repayable at premium
of 10%. Balance in Securities Premium Reserve is Rs. 20,000.
(c) 80, 9% debentures of Rs. 1,000 each are issued at 5% premium.
(d) Another 400, 8% debentures of Rs. 100 each are issued as collateral security against a
loan of Rs. 40,000

Q No. 8: A company issued 15,000 10% Debentures of Rs 100 each on 1 April, 2018 at a
discount of 6% redeemable at par by drawings method as follows:
Date of redemption Amt of Redemption (FV)
31 March 2020 5,00,000
31 March 2021 5,00,000
31 March, 2022 5,00,000
Calculate amount of discount on issue of debentures to be written of each year.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.11

Q No. 9: Rajkumar Ltd, purchased a building from Alok Ltd. for Rs 65,00,000. The payment
was made as to 25% by accepting a bill of exchange, and for the balance debentures are
allotted at 25% premium. Journalise in the books of purchaser.

Q No. 10: On April 1,2018, Ha Ltd. purchased a running business from Hu Ltd. for Rs.
10,40,000 payable as to 25% by a cheque and the balance by an issue of 12% Debentures of
Rs. 500 each at a premium of 4 %. The assets and liabilities consisted of the following:
Building Rs. 6,00,000, Plant and Machinery Rs. 1,00,000, Inventories Rs. 2,00,000, Trade
Receivables Rs. 1,80,000, Trade Payables Rs. 80,000.
Pass the necessary journal entries in the books of Ha Ltd on April, 1,2018.

Q No. 11: B Ltd. secured an overdraft of Rs. 80,000 from the bank by issuing 900, 12%
Debentures of Rs.100 each as collateral security. Prepare the Balance Sheet of the Company.

Q No. 12: Babli Ltd has 10,00,000 12% Debentures on which the interest is payable on 30th
September and 31st March. Show the entries related to debenture interest. Tax deducted at
source is 10%.

Q No. 13: A company issued 12% debentures of the face value of Rs.10,00,000 at 10%
discount on 01-04-2022. Debenture interest after deducting tax at source @ 10% was payable
on 30th June and 31st of December every year. All the debentures were to be redeemed
after the expiry of five-year period at 5% premium.
Pass journal entries for the accounting year 2022-2023.

Practice Question

PQ No. 1: ABC Ltd. made an issue of 50,000 12% Debentures of Rs 100 each, payable as
follows:
Rs. 25 on Application
Rs. 50 on Allotment
Rs. 25 on First and Final Call.
Applications were received for 52,000 debentures and the directors allotted 50,000
debentures rejecting applications for 2,000 debentures. The application money received for
2,000 rejected debentures was duly refunded. All the calls were made and the moneys duly
received.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.12

Show the Journal Entries to record the above transactions and prepare the Balance Sheet of
the company.
Solution:
ABC Ltd.
Journal Entries
[Link]. Particulars Debit (Rs.) Credit (Rs.)
(i) Bank A/c Dr 13,00,000
To 12% Debenture Application A/c 13,00,000
(Being application money of Rs 25 each on 52,000
debentures received)
(ii) 12% Debenture Application A/c Dr 13,00,000
To 12% Debentures A/c 12,50,000
To Bank A/c 50,000
(Being allotment of 50,000 debentures as per boards
resolution dated and 2,000 debentures rejected and
refunded)
(iii) 12% Debenture Allotment A/c Dr 25,00,000
To 12% Debentures A/c 25,00,000
(Being allotment money due on 50,000 debentures
@ Rs 50 each)
(iv) Bank A/c Dr 25,00,000
To 12% Debenture Allotment A/c 25,00,000
(Being allotment money received)
(v) 12% Debenture First and Final call A/c Dr 12,50,000
To 12% Debentures A/c 12,50,000
(Being call money due on 50,000 debentures @ Rs 25
each)
(vi) Bank A/c 12,50,000
To 12% Debenture First and Final call A/c 12,50,000
(Being the call money received)
ABC Ltd.
Balance Sheet (Extract) as on ……………
Particulars Note Rs.
EQUITYAND LIABILITIES
Non-Current Liabilities
Long Term Borrowings 1 50,00,000
ASSETS
Cash and cash equivalent 50,00,000
Notes to Account
Particulars Rs.
1. Long Term Borrowings
12% Debentures 50,00,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.13

PQ No. 2: Z Ltd. issued 2,500, 10% Debentures of Rs.100 each, a premium of 10% payable
as Rs. 20 on application, Rs. 50 on allotment (including the premium) and the balance on
first & final call.
The public applied for 3,500 debentures. Applications for 2,250 debentures were accepted
in full, applicants for 500 were allotted 250 debentures, and remaining applications were
rejected. All money was duly received.
Journalize these transactions and balance sheet of company.
Solution:
Z Ltd.
Journal Entries
Particulars Dr. (Rs.) Cr. (Rs.)
(i) Bank A/c Dr. 70,000
To Debenture Application A/c 70,000
(Being application money received on 3,500 debentures)
(ii) Debentures Application A/c Dr. 70,000
To 10% Debentures A/c 50,000
To Debentures Allotment A/c 5,000
To Bank A/c 15,000
(Being the application money adjusted and the surplus
refunded)
(iii) Debenture Allotment A/c Dr. 1,25,000
To 10% Debentures A/c 1,00,000
To Securities Premium A/c 25,000
(Being the Amount due on allotment @ Rs. 50 on 2,500
debentures)
(iv) Bank A/c Dr. 1,20,000
To Debentures Allotment A/c 1,20,000
(Being the Balance of the amount due on allotment received)
(v) Debentures Call A/c Dr. 1,00,000
To 10% Debentures A/c 1,00,000
(Being the Amount due on Call @ Rs. 40 on 2,500 debentures)
(vi) Bank A/c Dr. 1,00,000
To Debentures Call A/c 1,00,000
(Being the Amount due on call received)

PQ No. 3: Aakanksha Ltd. made an issue of 10,000 12% debentures of ₹ 100 each as follows:
₹ 25 on Application
₹ 25 on Allotment
₹ 50 on First & Final Call
Application were received for 12,000 shares and the directors allotted 10,000 debentures
rejecting an application for 2,000 debentures. The money received on application for 2,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.14

debentures rejected was duly refunded. All the calls were made and duly received. Show
the necessary Journal Entries and Cash Book to record the above transactions.

Issue of Debentures under different conditions of redemption

PQ No. 4: Journalize the following transactions.

Issue of 12%, 1,00,000 debentures of Rs. 100 each
1. at par and redeemable at par.
2. at 10% discount and redeemable at par.
3. at 10% premium and redeemable at par.
4. at 10% premium and redeemable at a premium of 5%.
5. at par and redeemable at a premium of 5%.
6. at 10% discount and redeemable at a premium of 5%.
Solution:
Journal Entries (in ‘000)
S. No. Particulars Dr. (Rs.) Cr. (Rs.)
(i) Bank Account Dr. 10,000
To 12% Debentures Account 10,000
(Being 12% Debentures issued at par)
(ii) Bank Account Dr. 9,000
Discount on Issue of Debentures Account Dr. 1,000
To 12% Debentures Account 10,000
(Being 12%debentures issued at 10% discount)
(iii) Bank Account Dr. 11,000
To 12% Debentures Account 10,000
To Securities Premium Account 1,000
(Being 12% debentures issued at 10% premium)
(iv) Bank Account Dr. 11,000
Loss on Issue of Debenture Account Dr. 500
To 12% Debentures Account 10,000
To Securities Premium Account 1,000
To Premium on redemption of Debentures 500
(Being 12% debentures issued at 10% premium and
redeemed at 5% premium)
(v) Bank Account Dr. 10,000
Loss on issue of Debentures Account Dr. 500
To 12% Debentures Account 10,000
To Premium on Redemption of Debentures Account 500
(Being 12% debentures issued at par and redeemed at 5%
premium)

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.15

(vi) Bank Account Dr. 9,000

Loss on Issue of Debentures Account (1000+500) Dr. 1,500
To 12% Debentures Account 10,000
To Premium on redemption of Debentures Account 500
(Being 12% debentures issued at 10% discount and
redeemed at 5% premium)

PQ No. 5: Radhika Ltd. issues 13% Debentures of ₹ 100 at a premium of 5%, redeemable at
the end of 5 years at a premium of 10%. Show necessary journal entry and also give balance
sheet.

PQ No. 6: Parul Ltd. issued 15% Debenture of ₹ 100 each at a discount of 5%, but redeemable
at a premium of 5%, at the end of 4 years. Show necessary journal entry and also give
balance sheet.

PQ No. 7: Tanvi Ltd. issued 11% debenture at ₹ 95, redeemable at the end of 10 years at
98%. Which of the following entry is correct?

PQ No. 8: Priyanshi Ltd. issued ₹ 70,000, 12% debentures of ₹ 100 each at a premium of 5%
redeemable at 110%. Show necessary journal entry and also give balance sheet.

PQ No. 9: Akshita Ltd. issue 12% December of ₹ 100 at a discount of 5%, redeemable at the
end of 5 years at a premium of 10%. Show necessary journal entry.

PQ No. 10: Souryya Ltd. issued 10,000, 12% debentures of ₹ 100 each at a discount of 5%.
These debentures are redeemable at a premium of 10% after 5 years. Calculate the Balance
at the end of third year of “Loss on Issue of Debentures A/c”.

PQ No. 11: Show journal entries for the following issues.

1) P Ltd. issues 5,000 10% Debentures of ₹ 100 each at a discount of 5%, redeemable at the
end of 5 years at par.
2) Q Ltd. issues 5,000, 11% Debentures of ₹ 100 each at par; redeemable at the end of 5
years at a premium of 5%.
3) R Ltd. issues 5,000, 12% Debentures of ₹ 100 each at a discount of 5%, redeemable at the
end of 5 years at premium of 10%.
4) S Ltd. issues 5,000, 13% Debentures of ₹ 100 each at a premium of 5%, redeemable at the
end of 5 years at a premium of 10%.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.16

Discount / Loss to be written off

PQ No. 12: Bee Ltd. issued 2,000, 12% Debentures of Rs.100 each at a discount of 6% on
01.04.2018 repayable by equal annual drawings in four years. You are required to show the
discount on Issue of Debentures Account over the period.
Solution:
Total amount of discount on issue of debentures:
= Rs. 2,00,000 x 6/100 = Rs. 12,000
This total discount of Rs. 12,000 has to be written off in proportion to the debentures
outstanding at the beginning of each year. Thus, outstanding balance ratio will be as follows:
1.4.2018 = Rs. 2,00,000
1.4.2019 = Rs. (2,00,000 - 50,000) = Rs.1,50,000
1.4.2020= Rs. (1,50,000 - 50,000) = Rs. 1,00,000
1.4.2021 = Rs. (1,00,000 - 50,000) = Rs.50,000
Outstanding balance ratio = 2,00,000 : 1,50,000 : 1,00,000 : 50,000 = 4 : 3 : 2 : 1
Therefore, amount of discount to be written off every year will be as follows:
Rs.
31.3.2019 = 12,000 x 4/10 = 4,800
31.3.2020 = 12,000 x 3/10 = 3,600
31.3.2021 = 12,000 x 2/10 = 2,400
31.3.2022 = 12,000 x 1/10 = 1,200
Total Rs. 12,000

PQ No. 13: Jayesh Ltd. issued ₹ 1,00,000 debentures at a discount of 6% on 1.1.2019

repayable in 5 equal instalments. Calculate Discount to be written off in each 5-calendar
year and show Discount on issue of Debenture Account.

PQ No. 14: Shubham Ltd. issued 20,000, 8% debenture of ₹ 10 each at par, which are
redeemable after 5 years at a premium of 20%. Calculate the amount of loss on redemption
of debentures to be written off every.

PQ No. 15: Tanya Ltd. issued 5,000, 12% debentures of ₹ 100 each at a premium of 10%,
which are redemption after 10 years at a premium of 20%. Calculate the amount of loss on
issue of debentures to be written off every year and also show loss on issue of debenture
Account.

PQ No. 16: Tripti Ltd. issued 40,000, 8% debentures of ₹ 10 each which are redeemable
after 5 years at a premium of 20%. Calculate the amount of loss on issue of Debentures to
be written off every year will be.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.17

PQ No. 17: Prashant Ltd. issued 10,000, 12% Debentures of ₹ 100 each at ₹ 94 on 1st January,
2014. Under the terms of issue, the debentures are redeemable at the end of 8 years from
the date of the issue. Calculate the amount of discount to be written -off in each of the 8
years.

PQ No. 18: On 1st July, 2017 Shy Ltd. issued 2,500, 9% debentures of ₹ 100 each at a discount
of 10%. The debentures were redeemable by five annual drawings of ₹ 50,000 on 31st March
each year. Calculate the amount of discount on debenture to be written off at the end of
each year on 31st March.

PQ No. 19: Khushi Ltd. issues 8% Debenture of ₹ 100 at a discount of 5%, redeemable at the
end of 5 years at par. Calculate the amount of discount on debenture to be written off at
the end of each year.

PQ No. 20: Dikshita Ltd. issued 10,000, 12% Debentures of ₹ 100 at ₹ 94 on 1st January 2014.
Under the term of issue, 1/5th of the debentures are annually redeemable by drawing, the
first redemption occurring on 31st December 2014. Calculate the amount of discount to be
written off in 2014 to 2018.

PQ No. 21: On 1st July, 2017 Neha Ltd. issued 50,000, 9% debentures of ₹ 100 each at a
discount of 10%. The debentures were redeemable by five annual drawings of ₹ 10,00,000
on 31st March each year. Calculate the amount of discount on debentures to be written off
at the end of each year on 31st March.

PQ No. 22: Rai Ltd. issued 5,000 debentures of ₹ 100 each at a discount of 10%. The expenses
on issue amounted to ₹ 20,000. The company wants to redeem the debentures at the rate
of ₹ 1,00,000 each year commencing with the end of 5th year:
How much discount and expenses should be written off in each year?

PQ No. 23: Ram Ltd. issued 40,00,000, 15% Debentures at 8% discount. Debentures are to
be redeemed as per scheduled given below:
End of the year Face value of Debentures (₹)
2 4,00,000
3 8,00,000
4 12,00,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.18

5 16,00,000
Calculate the Amount of discount to be written off in each the 5 calendar years-

Debenture Interest
PQ No. 23: M Ltd. had issued Rs. 5,00,000, 10% debentures on which interest was payable
half-yearly on 30th September and 31st March. Show the necessary journal entries relating
to debenture interest for the year ended 31st March, 2022 assuming that all moneys were
duly paid by the company. Tax deducted at source is 10%.
Solution:
M Ltd.
Journal Entries
Date Particulars Debit Credit
(Rs.) (Rs.)
2021 Debenture Interest A/c Dr. 25,000
Sep, 30 To Income-tax Payable A/c 2,500
To Debenture-holders A/c 22,500
(Interest due on Rs 5,00,000, 10% debentures for 6
months and income-tax deducted at source thereon @
10%)
Sep,30 Debenture-holders’ A/c Dr. 22,500
To Bank A/c 22,500
(Payment of interest to debenture-holders)
Sep,30 Income-tax Payable A/c Dr. 2,500
To Bank A/c 2,500
(Deposit of income-tax deducted at source from
Debenture Interest with the Government)
March, Debenture Interest A/c Dr. 25,000
31 To Income-tax Payable A/c 2,500
To Debenture-holders A/c 22,500
(Interest due on Rs 5,00,000, 10% debentures for 6
months and income-tax deducted at source thereon @
10%)
2022 Debenture-holders’ A/c Dr. 22,500
March,31 To Bank A/c 22,500
(Payment of interest to debenture-holders)
March,31 Income-tax Payable A/c Dr. 2,500
To Bank A/c 2,500
(Deposit of income-tax deducted at source from
Debenture Interest with the Government)
March,31 Profit and Loss A/c Dr. 50,000
To Debenture Interest A/c 50,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.19

(Transfer of Debenture Interest to Profit and Loss A/c)

PQ No. 24: Reet Ltd. has issued 14% Debentures of ₹ 20,00,000 at a discount of 10% on April
1, 2017 and the company pays interest half-yearly on June 30, and December 31 every year:
Give necessary journal entry for the year ended 31.03.2018. (Assuming rate of Tax Deducted
at Source is 10%)

PQ No. 25: On May 1,2018, Zoya Ltd. issued 7% 10,000 convertible debentures of ₹ 100
each at a premium of 20%. Interest is payable on September 30 and March 31 every year.
Assuming that the interest runs from the date of issue and accounting year ends on 31st
March each year, give necessary journal entry for the year ended 31.03.2019. (Assuming
rate of Tax Deducted at Source is 12%)

Debentures issued for purchase of Assets

PQ No. 26: Radha Ltd. purchased machinery worth Rs.1,20,000 and building worth Rs.
2,00,000 from Deepa Ltd. For an agreed purchase consideration of Rs. 3,00,000 to be
satisfied by the issue of 3,000, 12% debentures of Rs. 100 each. Show the necessary journal
entries in the books of Radha Ltd.
Solution:
Radha Ltd.
Journal Entries
[Link]. Particulars Dr. (Rs.) Cr. (Rs.)
1 Building A/c Dr. 2,00,000
Plant and Machinery A/c Dr. 1,20,000
To Deepa Ltd. 3,00,000
To Capital Reserve A/c 20,000
(Purchase of sundry assets and transfer of capital profits as
per agreement with the vendor dated.)
2. Deepa Ltd. Dr. 3,00,000
To 12% Debentures A/c 3,00,000
(Being 3,000, 12% Debentures of Rs 100 each allotted to
vendors for consideration other than cash as per Board’s
resolution dated.)

PQ No. 27: Rai Company purchased assets of the book value of Rs. 2,20,000 from another
company and agreed to make the payment of purchase consideration by issuing 2,000, 10%
debentures of Rs. 100 each at a premium of 10%.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.20

Record necessary journal entries.

Solution:
Books of Rai Company Limited
Journal Entries
[Link]. Particulars Dr. (Rs.) Cr. (Rs.)
1 Sundry Assets A/c Dr. 2,20,000
To Vendors 2,20,000
(Assets purchased from vendors)
2 Vendors Dr. 2,20,000
To 10% Debentures A/c 2,00,000
To Securities Premium Reserve A/c 20,000
(Allotment of 2,000 debentures of Rs. 100 each at a
premium of 10% as purchase consideration)

Debentures issued as collateral security

PQ No. 28: Abheet Ltd. borrowed 25,00,000 from a scheduled bank at an annual interest
rate of 12% and deposited 14% debentures of the face value of ₹ 40,00,000 as collateral
security. Pass the journal entries regarding the issue of debentures as collateral security
and also show the above items in the company’s balance sheet.

PQ No. 29: Adarsh Ltd. obtained loan from IDBI of ₹ 10,00,000, giving as collateral security
of ₹ 15,00,000, 14% Debenture on 1st April 2019. Show the accounting treatment to issue
debentures as collateral security?

PQ No. 30: Aditi Ltd. obtained loan from IDBI of ₹ 10,00,000, given as collateral security of
₹ 15,00,000, 14% Debentures on 1st April 2019. Show necessary journal entry for issue of
debenture as collateral security along with Balance Sheet.

PQ No. 31: Adrija Ltd. borrowed ₹ 25,00,000 from a scheduled bank at an annual interest
rate of 12% and deposited 14% debentures of the face value of ₹ 40,00,000 as collateral
security. Give balance sheet.

PQ No. 32: Ajinkya Ltd. obtained loan of ₹ 5,00,000 on 31st March, 2016 from a bank by
issuing and securing 6,000, 12% debentures of ₹ 100 each as collateral security. Give balance
sheet.

PQ No. 33: Aliya Ltd. issued 10% Debentures as follows:

a) To public for cash at 95% having face value ₹ 10,00,000.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Issue of Debentures C l a s s N o t e s | 14.21

b) To a vendor having face value ₹ 2,50,000 for purchase of fixed assets of ₹ 2,00,000.
c) To bank as collateral security having face value ₹ 2,50,000 for a loan of ₹ 1,00,000.
Pass necessary journal entries.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Debentures C l a s s N o t e s | 15.7

To Bank A/c (with cum interest price)

When own debentures are subsequently cancelled -

Debentures A/c Dr. (nominal value of the debentures cancelled)
Loss on Redemption of Debentures A/c Dr. (Loss on Cancellation)
To Own Debentures A/c (book value of the Own Debentures cancelled)
To Profit on Redemption of Debentures A/c (Profit on Cancellation)
Note: If there is any profit or loss on sale of investments the same has to be transferred to
Debenture Redemption Fund Account.

Practical Question

Q No. 1: Amritsar Ltd. issued Rs 5 Crores, 10% debentures of Rs. 1000 each at Rs. 940. The
debentures are redeemable in five annual instalments. Pass appropriate entries in year 1
and 2.

Q No. 2: A company issued 100,000 debentures of Rs. 100 each redeemable at the end of
10th year, but reserves the right to redeem earlier from the end of the 5th year. The
company decides at the end of the 5th year to redeem 20,000 debentures out of the profits
it has made.
Pass necessary journal entries relating to redemption.

Q No. 3: JK Ltd., a listed company, issued 6,000, 12% Debentures of 50 each at a premium
of 5% on April 1, 2016. Interest on these debentures is payable annually on 31st March each
year. The debentures are redeemable at par in four equal installments at the end of third,
fourth, fifth and sixth year at a premium of 10%. The company invested in specified
securities as investment for the redemption of debentures.
You are required to pass journal entries at the time of issue and redemption of debentures
in the books of the company.

Q No. 4: Bima Ltd. had issued 11% 5,00,000 debentures of Rs. 100 each redeemable on 31st
March 2019 at a premium of 5%. The company offered three options to debenture holders as
under:
(i) 13% Preference shares of Rs.10 each at Rs.10.50
(ii) 14% debentures of Rs. 100 at par.
(iii) Redemption in cash.
The options were accepted as under:

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Debentures C l a s s N o t e s | 15.8

Option (i) by holders of 1,00,000 debentures.

Option (ii) by holders of 1,00,000 debentures.
Option (iii) by holders of 3,00,000 debentures.
The company carried out the redemption. Pass the necessary journal entries.

Q No. 5: XYZ Ltd. has 5000, 10% debentures of Rs.100 each. The interest on these debentures
is paid half yearly on June 30, December 31 every year. The company is not maintaining any
sinking fund. On 01-04-2022, the company purchased 500 debentures at Rs. 95 each cum –
interest for immediate cancellation. On 01-10-2022, the company purchased 600 debentures
at Rs. 90 each ex-interest for immediate cancellation.
Journalize.

Q No. 6: On 1st April, 2018 A Ltd. made an issue of 10,00,000 14% debentures of Rs. 100
each at Rs. 98 per debenture. According to the terms of issue, the company should redeem
10000 debentures either by purchasing them from the open market or by drawing lots at par
at the company’s option. Profit, if any, on redemption is to be transferred to capital reserve.
The company’s accounting year ends on 31st March. Interest is payable on 30th September
and 31st March.
During 2018-19 the company wrote off 20% of Debenture Discount Account.
During 2021-22, the company purchased and cancelled the debentures as given below:
Rs. 200,00,000 at Rs. 95 per debenture on 30th September, and
Rs. 300,00,000 at Rs. 97 per debenture on 31st March.
Give the journal entries in the books of A Ltd. for both the years

Q No. 7: Sugandha Ltd. issued 10,000 12% Debentures of Rs. 100 each on 1st April, 2021.
Interest is payable on 30th September and 31st March every year. On 1st July, 2022, the
company purchased 1,000 of its Own Debentures at Rs. 96 ex-interest as investments. On
1st January, 2023, the company purchased 2000 of its Own Debentures at Rs. 96 cum interest
as investment. On 31st March 2023, the company cancelled all of its Own Debentures and
books closes on 31st March every year. Journalize.

Q No. 8: On 30th June 2022 following balances stood in the books of a company:
Rs.
8% First Mortgage Debentures Stock 2,00,000
Debenture Redemption Fund 2,13,080
Debenture Redemption Fund Investments:

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Debentures C l a s s N o t e s | 15.9

Rs 70,000 6% Punjab Electricity Board Bonds 71,260

Rs 80,000 5% UP Water Board Bonds 64,068
Rs 60,000 8% Government of India Loan 61,710
Rs 16,000 7% Cooperative Bank Loan 16,042
On the same day the investments were sold:
Electricity bonds at par, 5% loan at Rs 91, 8% loan at Rs 109 and 7% loan at Rs 103.
On 1st July the debentures were redeemed at a premium of 5%.
Write up the accounts concerned:

Q No. 9: MM Ltd. had the following among their ledger opening balances on January 1, 2019:
11% Debentures A/c (2000 issue) 50,00,000
Debenture Redemption Reserve A/c 45,00,000
13.5% Debentures in XX Ltd. A/c (Face Value Rs. 20,00,000) 19,50,000
Own Debentures A/c (Face value Rs. 20,00,000) 18,50,000
As 31st December 2019 was the date for redemption of the 2000 debentures, the company
started buying Own Debentures and made the following purchases in the open market:
1-2-2019 2,000 debentures at Rs. 98 cum-interest.
1-6-2019 2,000 debentures at Rs. 99 ex-interest.
Half yearly interest is due on the debentures on the 30th June and 31st December in the
case of both the companies.
On 31st December 2019 the debentures in XX Ltd. were sold for Rs. 95 each ex-interest. On
that date, the outstanding debentures of MM Ltd. were redeemed by payment and by
cancellation. Show the entries in the following ledger accounts of MM Ltd. during 2019:
(a) Debenture Redemption Reserve A/c
(b) Own Debentures A/c
The face value of a debenture was Rs. 100 (Round off calculations to the nearest rupee.).

Practice Questions

Redemption of Debentures (In Cash)

PQ No. 15.1: ABC Ltd. issued 11% debenture at ₹ 95, redeemable at the end of 10 years at
par. Show necessary journal entry for issue and redemption of Debentures.

PQ No. 15.2: A company issued 15,000 10% Debentures of Rs 100 each on 1 April, 2018 at a
discount of 6% redeemable at par by drawings method as follows:
Date of redemption Amt of Redemption (FV)

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Debentures C l a s s N o t e s | 15.10

31 March 2020 5,00,000

31 March 2021 5,00,000
31 March, 2022 5,00,000
Show necessary journal entry for above transactions.

Redemption of Debentures (By Conversion)

PQ No. 15.3: On 1st April, 2020 Rosy Ltd. issued 20,000, 13% debentures of ₹ 100 each at 5%
discount. Debentures holders have an option to convert their holdings in 14% preference
shares of ₹ 100 each at a premium of ₹ 25 per share. On 31st March, 2021, one year’s interest
has accrued on these debentures and has remained unpaid. A holder of 100 debentures
notified his intention to convert his holdings in 14% preference shares.
Journalize the above transactions. Also show workings for number of preferences shares to
be issued in exchange.

PQ No. 15.4: On 1.1.2015 X Ltd. issued 10,000 fifteen years 10% debentures of ₹ 100 each.
On 1.4.2020 the company gave notice to the debentures holders of its intention to redeem
the debentures on 1.10.2020 either by payment in cash or by allotment of 11% preference
shares of ₹ 100 each at ₹ 130 per share or 11% second debenture of ₹ 100 at ₹ 96 per
debenture. Holders of 4,000 debentures accepted the offer of the preference shares.
Give necessary journal entries for redemption, if debentures are redeemed at 4% premium?

PQ No. 15.5: Zenith Ltd. gave notice of its intention to redeem its outstanding ₹ 6,00,000,
9% debentures at 102% and offered the holders the following options for the redemption to
subscribe for:
1) 6% Cumulative preference shares of ₹ 20 each at ₹ 22.50 per share and
2) 10% Debentures of ₹ 100 each at ₹ 96.
Holders of ₹ 2,40,000 debentures accepted the proposal (i) and ₹ 3,60,000 debentures
holders accepted the proposal (ii) above.
Give necessary journal entries for redemption, if debentures are redeemed at 4% premium?

PQ No. 15.6: On 1st January; 2015 X Ltd. issued 10,000 fifteen years 10% debentures of ₹
100 each. One of the conditions of issue was that the company could redeem the debentures
by giving six months’ notice at any time after 5 years, at a premium of 4%, either in cash or
by allotment of preference shares and / or other debentures at the option of debentures
holders.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Debentures C l a s s N o t e s | 15.11

On 1st April, 2020 the company gave notice to the debenture holders of its intention to
redeem the debenture on 1st October, 2020 either by payment in cash or by allotment of
11% preference shares of ₹ 100 each at a ₹ 130 per share or 11% second debentures of ₹ 100
at ₹ 96 per debenture.
Holders of 4,000 debentures accepted the offer of the preference share, holders of 4,800
debentures accepted the offer of the 11% second debentures and rest demanded cash on 1st
October; 2020.
Give the journal entries to give effect to the above as of 1st October; 2020.

PQ No. 15.7: On 10.4.2019, Zenith Ltd. issued 12,500, 12% debentures of ₹ 100 each at ₹
98. Holders of these debentures have an option to convert their holdings into 14% preference
shares of ₹ 100 each at a premium of ₹ 25 per share at any time within 3 years. On 31.3.2020,
holders of 2,500 debentures notified their intention to exercise the option.
Give Journal entries for issue and conversion of debentures. Also show workings for number
of preferences shares to be issued in exchange.

Redemption of Debentures (immediate Cancellation)

PQ No. 15.8: Z Ltd. had issued 1,000, 6% Debentures of ₹ 100 each. The company on
1.3.2018 purchased 50 of its debentures at ₹ 96 cum-interest for immediate cancellation.
Interest payable on 30th June and 31st December, 2018. You are required to show the journal
entries to record the above transactions.

PQ No. 15.9: On 1.1.2019, Mumtaz Ltd. had outstanding in its books 1,000, 12% Debentures
of ₹ 100 each. The interest is payable on 30th June & 31st December: On 1st Nov, 2019 the
directors acquired in the open market December of ₹ 5,000 @ ₹ 98.50 (ex-interest) for
immediate cancellation. You are required to show the journal entries to record the above
transactions.

PQ No. 15.10: A Company purchased 200, 12% debentures of ₹ 100 each at ₹ 97 on cum
interest basis on 1st July, 2019 for immediate cancellation. Interest is payable on 30th
September and 31st March each year. You are required to show the journal entries to record
the above transactions.

PQ No. 15.11: On 1st April, 2016 Kapil Ltd. had made an issue of 2,000, 6% debentures of ₹
100 each. The Company during the year 2017-2018 purchased for cancellation 500 of these
debentures. Company paid ₹ 95 per debenture for the same. The expenses on purchase

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Debentures C l a s s N o t e s | 15.12

amounted to ₹ 200. You are required to show the journal entries to record the above
transactions.

PQ No. 15.12: ABC Ltd had ₹ 10,00,000, 6% Debentures of ₹ 100 each as on 31st March, 2018.
Company purchased in the open market following debentures for immediate cancellation:
On 1.7.2019: 1,000 Debentures @ ₹ 97 cum-interest.
On 28.2.2019: 1,800 Debentures @ ₹ 99 ex-interest.
Debentures interest due dates are 30th September and 31st March.
Pass necessary journal entries in the books of the company, ignoring income tax.

PQ No. 15.13: On 1.1.2019, NSZ Ltd had outstanding in its books 1,000, 12% Debentures of
₹ 100 each. The interest is payable on 30th June & 31st December: In accordance with the
power in the deed, the directors acquired in the open market Debentures for immediate
cancellation as follows:
2019 1st March ₹ 10,000 @ ₹ 98.00 (cum-interest)
2019 1st March ₹ 20,000 @ ₹ 100.25 (cum-interest)
2019 1st Nov. ₹ 5,000 @ ₹ 98.50 (ex.-interest)
Pass necessary journal entries in the books of the company, ignoring income tax.

Sinking Fund
PQ No. 15.14: The following balance appeared in the books of Royco Ltd. on 1.4.2017:

Debentures Redemption Fund ₹ 60,000 represented by investments of an equal amount

(nominal value of ₹ 75,000).

The 12% debentures stood at ₹ 90,000

The company sold the investments of ₹ 32,000 at ₹ 36,000.

Debentures of ₹ 30,000 were redeemed at a premium of 20%.
Show the necessary ledger accounts.

PQ No. 15.15: Following balance appeared in the books of R Ltd. on 1.4.2019:

Debentures Redemption Fund ₹ 90,000 represented by investments of an equal

amount (nominal value ₹ 1,12,500).

12% Debentures stood at ₹ 1,35,000.

Company sold investments of ₹ 48,000 at ₹ 54,000.

Debentures of ₹ 45,000 were redeemed at a premium of 20%.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Debentures C l a s s N o t e s | 15.13

Show the necessary ledger accounts.

PQ No. 15.16: Following balances appeared in the books of Bright Ltd:

Sinking fund account ₹ 50,000

Sinking fund investments account ₹ 48,000 (10% Govt. securities, nominal value ₹

45,000)

12% Debentures account ₹ 1,00,000.

Company sold ₹ 30,000 Govt. securities at 110% and redeemed part of the debentures at a
premium of 10%. Closing balance of Sinking Fund A/c will be-

PQ No. 15.17: The following balances appeared in the books of P Ltd. on 1.1.2018:

12% Debentures ₹ 4,00,000

Sinking fund investment (Represented by 10% ₹ 3,60,000 secured ₹ 3,00,000

bonds of Government of India)

Annual contribution to the sinking fund was ₹ 64,000 made on 31 December each year:
On 31.12.2018 balances at bank was ₹ 1,64,000. The company sold the investments at 80%
of its face value and debentures were paid off.
You are required to prepare the necessary ledger accounts for the year 2018-19.

PQ No. 15.18: On 31.03.2018, B Ltd. showed in their accounts debentures redemption fund
of ₹ 1,50,000 which was represented by ₹ 1,51,000, 5% municipal bonds purchased for ₹
1,50,000. On 28.2.2019, the company had a balance of ₹ 28,000 at their bank and they paid
into the bank account, the proceeds of sale of foregoing investments for ₹ 1,50,500. On 1st
March, 2019, the debentures of the value of ₹ 1,50,000 were paid.
You are required to prepare the necessary ledger accounts for the year 2018-19.

PQ No. 15.19: Following balances appeared in the books of N Ltd.

12% Debentures ₹ 8,00,000

12% Debentures Sinking Fund ₹ 6,00,000

Sinking Fund Investments ₹ 6,00,000 (10% Govt. Bonds of ₹ 7,20,000)

Balance at bank was ₹ 3,28,000 before receipt of interest. Company sold the investments
at 80% and debentures were redeemed.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Redemption of Debentures C l a s s N o t e s | 15.14

Show necessary ledger accounts in the books of company.

PQ No. 15.20: Following balances appeared in the books of R Ltd:

12% Debentures ₹ 8,00,000
Sinking fund ₹ 7,00,000
Sinking fund investment ₹ 7,00,000 (Represented by 10% ₹ 7,50,000 secured bonds of
Government of India).
Annual contribution to the sinking fund was ₹ 1,20,000 made on 31st March each year: On
31.3.2018, balance at bank was ₹ 3,50,000 before receipt of interest. Company sold the
investments at 90% for redemption of debenture at a premium of 10% on above date.
Show necessary ledger accounts in the books of company.

PQ No. 15.21: Following balances stood in books X Ltd.

3,50,000, 6% Delhi Govt. Bond 3,56,300
4,00,000, 5% Punjab Water Loan 3,20,340
3,00,000, 8% Goa Govt. Loan 3,08,550
80,000, 7% Gurgaon Gramin 80,210
Investments were sold as follows:
6% Delhi Govt. Bond at par
5% Punjab Water Loan at ₹ 91
8% Goa Govt. Loan at ₹ 109
7% Gurgaon Gramin Loan at ₹ 103
Show necessary journal entry to sale of investment.

PQ No. 15.22: Following balances appeared in the books of JKJ Ltd.:

a) Sinking fund account ₹ 62,500
b) Sinking fund investments account ₹ 60,000 (10% Govt. securities, nominal value ₹
56,250)
c) 12% Debentures account ₹ 1,25,000.
Company sold ₹ 37,500 Govt. securities at 110% and redeemed part of the debentures at a
premium of 10%.
Show necessary ledger accounts in the books of company.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.6

Practical Questions

Q No. 1: From the following Balance Sheet of H Ltd. (holding) and S Ltd. (subsidiary),
prepare a consolidated balance sheet of H Ltd. and its subsidiary S Ltd.
Particulars H Ltd Rs. S Ltd Rs.
Equity & Liabilities
Share capital:
Shares of Rs. 10 each 5,00,000 2,00,000
Sundry Liabilities 1,00,000 25,000
Total 6,00,000 2,25,000
Assets:
Sundry Assets 400000 225000
Investment:
20,000 shares of Rs.10 each of S Ltd 200000
Total 6,00,000 2,25,000

Q No. 2: From the following balance sheets of A Ltd. and its subsidiary B Ltd. as on 31st
December 2022, prepare consolidated balance sheet.
Particulars A Ltd. (Rs.) B Ltd. (Rs.)
Equities & Liabilities
Share Capital: Shares of Rs. 50 each 5,00,000 2,00,000
Creditors 1,00,000 20,000
Reserves -- 10,000
Profit & Loss A/c 50,000 30,000
Total 6,50,000 2,60,000
Assets
Sundry Assets: 3,50,000 2,60,000
Investment in the shares of B Ltd 4,000 shares (at cost) 3,00,000
Total 6,50,000 2,60,000
A Ltd. purchase shares in B Ltd. on the balance sheet date.

Q No. 3: From the following balance sheets of P Ltd. and its subsidiary Q Ltd. as on 31st
December 2022, prepare a consolidated balance sheet.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.7

Equity and Liabilities P Ltd. Rs. Q Ltd. Rs.

Share Capital: (Shares of Rs.100 each) 6,00,000 4,00,000
Creditors 2,00,000 50,000
Reserve 40,000 20,000
Profit & Loss A/c 70,000 15,000
Total 9,10,000 4,85,000
Assets
Sundry Assets 5,00,000 4,85,000
Investment in 4,000 Shares of Q Ltd. (on 31st December 2010) 4,10,000
Total 9,10,000 4,85,000

Q No. 4: From the following, prepare consolidated balance sheet of X Ltd. and its subsidiary
Y Ltd.
Particulars X Ltd. Rs. Y Ltd. Rs.
Equities & Liabilities
Share capital: Shares of Rs.10 each 5,00,000 3,00,000
Other Liabilities 1,40,000 20,000
Total 6,40,000 3,20,000
Assets:
Sundry Assets 4,00,000 3,20,000
Investment in Shares of Y Ltd. 24,000 shares of Rs.10 each 2,40,000
Total 6,40,000 3,20,000

Q No. 5: From the following information, prepare a consolidated balance sheet Balance
sheet as on 31 December 2022
Particulars Sun Ltd. (Rs.) Moon Ltd. (Rs.)
I. Equities & Liabilities
Share Capital: Shares of Rs.10 each 2,00,000 1,00,000
Reserves 50,000 20,000
Profit & Loss A/c 20,000 10,000
Creditors 30,000 20,000
Total 3,00,000 1,50,000
II. Assets
Sundry Assets 220000 1,50,000
Investments 6,000 Shares of Moon Ltd 80000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.8

Total 3,00,000 1,50,000

Sun Ld. Acquired its shares in Moon Ltd. on 1 January 2022 when reserves of Moon Ltd. stood
at Rs.4,000 and its profit and loss account (Cr.) was Rs.5,000

Q No. 6: The following are the balance sheet of Big Ltd., and its subsidiary Small Ltd., as at
31 March 2023:
I. Equity and Liabilities Big Ltd. Rs. Small Ltd. Rs.
Equity shares of Rs.100 Each 16,00,000 4,00,000
Profit & Loss A/c 2,00,000 80,000
External Liabilities 30,00,000 19,20,000
Total 48,00,000 24,00,000
II. Assets Big Ltd. Rs. Small Ltd. Rs
Equipment 10,00,000 3,80,000
Investment: 3,600 Eq. shares in Small Ltd. on 1 April 2010 5,60,000 ---
Other Assets 32,40,000 20,20,000
Total 48,00,000 24,00,000
On 1 April 2022 P&L A/c of Small Ltd. showed a credit balance of Rs.32,000 and equipment
of Small Ltd., was revalued by Big Ltd., 20% above its book value of Rs.4,00,000 (but no such
adjustment effected in the books of Small Ltd.) prepare the consolidated balance sheet as
at 31 March 2023.

Q No. 7: The summarized balance sheet of H Ltd. and S Ltd. as on 31 December 2022 are as
follows:
Equity and Liabilities H Ltd. Rs. S Ltd. Rs.
Share capital: Share of Rs.10 each 15,00,000 3,00,000
Reserves 2,40,000 90,000
Profit & Loss A/c 1,80,000 1,20,000
Total 19,20,000 5,10,000
Assets
Sundry Assets 15,00,000 5,10,000
24,000 shares in S Ltd. 4,20,000
Total 19,20,000 5,10,000
S Ltd. had reserves of Rs.90,000 when H Ltd. acquired the shares in S Ltd. but the P&L A/c
balance of S Ltd. was fully earned after the purchase of shares.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.9

S Ltd. decided to issue bonus shares out of the post-acquisition profit in the ratio of 2 shares
for every 5 shares held.
Calculate the cost of control before the issue of bonus shares and after the issue of bonus
shares.

Q No. 8: From the following Balance Sheets of a holding company and its subsidiary on 31st
March 2022, prepare consolidated balance sheet.
Particulars Eally Ltd. Rs. Appy Ltd. Rs.
Equities & Liabilities
Share capital: Shares of Rs. 10 each 15,00,000 6,00,000
General reserve 2,40,000 1,80,000
P&L Account 2,70,000 2,10,000
Sundry Creditors 1,50,000 1,20,000
Outstanding expenses 60,000 30,000
Total 22,20,000 11,40,000
Assets:
Goodwill 90,000 30,000
Machinery 9,00,000 4,50,000
Stock 2,40,000 1,50,000
Debtors 3,60,000 4,80,000
Cash and Bank 60,000 30,000
Investments: 48,000 shares in Appy Ltd 5,70,000
Total 22,20,000 11,40,000
When control was acquired Appy Ltd. had Rs.1,20,000 in general reserve and Rs.90,000 in
profit and loss account. Immediately on purchase of shares, Eally Ltd. received Rs.48,000
as dividend from Appy Ltd. which was credited to profit and loss account. Debtors of Eally
Ltd, include Rs.60,000 due from Appy Ltd. whereas creditors of Appy Ltd. include Rs.45,000
due to Eally Ltd., the difference being accounted for by a cheque-in-transfer.

Q No. 9: Following is the extract of Jai ltd and Veeru ltd as on 31.3.2022.
Particulars Jai Ltd.(Rs.) Veeru Ltd.(Rs.)
Equity and Liabilities:
Share capital: Shares of Rs.10 each 5,00,000 2,00,000
Security Premium 50,000 10,000
General reserve 1,00,000 50,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.10

Surplus 75,000 20,000

Creditors 80,000 40,000
Total 8,05,000 3,20,000
Assets:
Sundry assets 5,10,000 3,20,000
Investment: 15,000 shares in Veeru ltd 2,95,000
Total 8,05,000 3,20,000
You are required to compute Minority Interest and Cost of control assuming Jai ltd acquired
shares in Veeru ltd on 31.3.2022.

Q No. 10: From the following balance sheets of Exe Ltd. and Wye Ltd. as on 31st March,
2022, Workout: (a) Net amount due to minority interest and (b) Cost of control.
Particulars Exe Ltd.(Rs.) Wye Ltd.(Rs.)
Equity and Liabilities:
Share capital: Shares of Rs.100 each 15,00,000 5,00,000
General reserve 1,50,000 1,00,000
Profit and loss account 2,00,000 75,000
Creditors 1,87,500 1,20,000
Total 20,37,500 7,95,000
Assets:
Sundry assets 14,77,500 7,95,000
Investment: 4,000 shares of Rs.100 each 5,60,000
Total 20,37,500 7,95,000
The assets of Wye Ltd. included the equipment worth Rs.1,50,000 which was revalued at
Rs.1,25,000. The investment of Exe Ltd. were in the shares of Wye Ltd. and the same were
acquired on 1st July, 2021. There is no opening of General Reserve and P&L of Wye ltd.

Q No. 11: Following are the balance sheet of Hari Ltd. and its subsidiary Shyam Ltd. as on
31st March, 2022.
Particulars Hari Ltd. (Rs.) Shyam Ltd. (Rs.)
1) Equities and liabilities:
Fully paid-up equity shares of Rs.10 each 6,00,000 2,00,000
General reserve 3,40,000 80,000
Profit and loss (surplus) 1,00,000 60,000
Trade payable 70,000 35,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.11

Total 11,10,000 3,75,000

2) Assets:
Machinery 3,90,000 1,35,000
Furniture 80,000 40,000
Investment (80% shares in Shyam Ltd. at cost) 3,40,000
Stock 1,80,000 1,20,000
Trade receivable 50,000 30,000
Cash and bank 70,000 50,000
Total 11,10,000 3,75,000
Additional information:
1. Surplus in the profit and loss statement of Shyam Ltd. stood at Rs.30,000 on 1st April,
2021 whereas general reserve has remained unchanged since that date.
2. Hari Ltd. acquired 80% shares in S Ltd. on 1st October, 2021 for Rs.3,40,000 as mentioned
above.
3. Shyam Ltd.’s plant and Machinery which stood at Rs.1,50,000 on 1st April, 2021 was
considered worth Rs.1,80,000 as on 1st October, 2021, this figure is to be considered while
consolidating the balance sheet.
You are required to prepare consolidated balance sheet.

Q No. 12: Balance sheet of H Ltd. and S Ltd. as at 31st March, 2022 are given below.
Particulars Heera Ltd. (Rs.) Sona Ltd.(Rs.)
Equity & Liabilities:
Share capital of Rs.10 each, fully paid 5,00,000 2,00,000
General reserve 1,00,000 50,000
Profit and loss account 60,000 35,000
Creditors 80,000 60,000
Total 7,40,000 3,45,000
Assets:
Fixed assets 3,00,000 1,00,000
60% shares in Sona Ltd. at cost 1,62,400 –
Current assets 2,77,600 2,39,000
Preliminary expenses – 6,000
Total 7,40,000 3,45,000
Heera Ltd. acquired the shares on 1st April, 2021 and on that date general reserve and profit
and loss account of Sona Ltd. showed the balance of Rs.40,000 and Rs.8,000 respectively.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.12

No part of preliminary expenses has been written off during the year ended on 31st March,
2022. Prepare the consolidated balance sheet of Heera Ltd. and its subsidiary Sona Ltd. as
on March, 2022.

Q No. 13: On 31st March, 2022, the balance sheet of Major ltd and its subsidiary Minor ltd.
Particulars Major Ltd. Minor Ltd.
Liabilities:
Equity share capital 800000 200000
General reserve 150000 70000
Profit and loss account 90000 55000
Creditors 120000 80000
1160000 405000
Assets:
Fixed assets 550000 100000
75% shares in Minor ltd at cost 280000 177000
stock 105000
Other current assets 225000 128000
1160000 405000
Draw consolidated balance sheet as at 31st March 2022, after taking into following
adjustments.
1. Major ltd acquired the shares on 31st July.
2. Minor ltd earned a profit o frs.45000 for the year ended 31st March, 2022.
3. In January, 2022, Minor ltd sold to Major ltd goods costing Rs.15000 for Rs.20000. On 31st
March, 2022, the half of the goods were lying as unsold in the godowns of Major ltd.

Q No. 14: On 1st October, 2021, X ltd acquired 12,000 equity shares of B ltd of the face
value of Rs.10 each at price of Rs.1,70,000. Following are the balance sheet of companies.
Particulars X Ltd. B Ltd.
Liabilities:
Equity share capital of Rs.10 each 1000000 200000
General reserve (1.4.21) 420000 100000
P&L a/c (1.4.2021) 90000 40000
Profit for the year 170000 45000
Creditors 240000 92000
Bills payable 80000 60000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.13

Total 20,00,000 5,37,000

Assets:
Goodwill 300000 70000
Land and building 400000 100000
Plant and machine 500000 100000
Stock 200000 40500
Debtors 300000 134500
Investments 200000
Bills receivables 20000 30000
Bank 60000 50000
Cash 20000 12000
Total 20,00,000 5,37,000
1. Out of debtors and bills receivable of X ltd Rs.50000 and Rs.16000 respectively
represented those due from B ltd.
2. The stock in hands of B ltd includes goods purchased from X ltd at Rs.20000 which includes
profit charged by latter company at 25% at cost.
Draw consolidated balance sheet as on 31.3.2022 with necessary working notes.

Practice Questions

PQ No 16.1: Balance Sheet of Anjali ltd. and its subsidiary Anushree Ltd. as on 31.03.2023
is as follow:
Particular Anjali Ltd. ₹ Anu Ltd. ₹
Equity and Liabilities
Shareholder’s Funds:
Equity Shares (₹ 10 each) 2,00,000 1,00,000
General Reserve 70,000 35,000
Profit & Loss Account 55,000 27,500
Current Liabilities:
Creditors 50,000 25,000
Bills Payable 30,000 15,000
4,05,000 2,02,500
Assets
Non – Current Assets:

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.14

Land & Buildings 80,000 40,000

Machinery 20,000 10,000
Preliminary Expense --- 2,000
Investment in Shares of Anu Ltd. (80% shares of Anu Ltd.) 1,20,000
Current Assets:
Stock 1,11,000 85,500
Debtors 30,000 45,000
Bills Receivable 30,000 15,000
Cash & Bank 10,000 5,000
4,05,000 2,02,500
Draw a consolidated balance sheet as on 31.03.2023

Calculation of Pre and Post Acquisition Profit

PQ No 16.2: Balance of Apurva Ltd. on 31.3.2019 are:

General Reserve ₹ 70,000
Profit & Loss Account ₹ 1,40,000
Divya Ltd. acquired 800% shares on 01st April, 2018. Balance of general reserve and profit
and loss account on 1.4,2018 of Apurva Ltd. were ₹ 10,000 and ₹ 50,000 respectively,
Calculate the Share of Divya Ltd. in Pre-Acquisition Profit and Post-acquisition profit.

PQ No 16.3: Following are the balances of Mandip Ltd. on 31.3.2019:

General Reserve ₹ 1,75,000
Profit & Loss Account ₹ 3,50,000
Manish Ltd. acquired 60% shares on 30th June, 2018. Balance of general reserve and profit
and loss account on 1.4.2018 of Mandip Ltd. were ₹ 25,000 and ₹ 1,25,000 respectively.
Calculate the Share of Manish Ltd. in Pre-Acquisition Profit and Post-acquisition profit.

Calculation of Cost of Control and Minority Interest

PQ No 16.4: A Ltd. holds 7,500 shares of B Ltd. Total shares of B Ltd. are 10,000 of ₹ 10
each. General Reserve and Profit & Loss balance of B Ltd. are ₹ 35,000 & ₹ 27,500
respectively out of which 40% relate to post – acquisition period.
Calculate cost of control and minority interest.

PQ No 16.5: Following are the balances of Y Ltd. on 31.3.2019:

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.15

Equity Share Capital ₹ 10,00,000

General Reserve ₹ 3,50,000
Profit & Loss Account ₹ 7,00,000
st
X Ltd. acquire 80% shares on 31 July, 2018. Balance of general reserve and profit and loss
account on 1.4.2018 of Y Ltd. were ₹ 50,000 and ₹ 2,50,000 respectively.
Calculate cost of control and minority interest.

PQ No 16.6: Following are the balances of Q Ltd. on 31.3.2019:

Equity Share Capital ₹ 20, 00,000
General Reserve ₹ 7,00,000
Profit & Loss Account ₹ 14,00,000
P Ltd. acquired 70% shares on 1.1.2019. Balances of general reserve and profit and loss
account on 1.4.2018 of Q Ltd. were ₹ 1,00,000 and ₹ 5,00,000 respectively.
Calculate cost of control and minority interest.

PQ No 16.7: N Ltd. acquired as investments 15,000 shares in M Ltd. for ₹ 1,55,000 on

1.7.2018. Details of M Ltd. on 31.3.2019 are given below:
Particulars Rs.
Share Capital (₹ 10 each) 2,50,000
General Reserve 40,000
Profit & Loss Account 25,000
General reserve of M Ltd. has remained unchanged since 31.3.2018. Profit earned by M Ltd.
for the year ended 31.3.2019 amounted to ₹ 20,000.
Calculate the cost of control and minority interest that will appear in consolidated balance
sheet prepared for the year ended 31.3.2019.

PQ No 16.8: Total of assets side of subsidiary’s balance sheet is ₹ 8,10,000 which includes
preliminary expense ₹ 8,000. Outsider’s liability in balance sheet was ₹ 1,60,000. Holdings
company holds 75% shares of subsidiary.
Calculate the cost of control and minority interest that will appear in consolidated balance
sheet.

PQ No 16.9: E Ltd. acquired 80% equity shares in F Ltd. on 1st July,2019 at cost price of ₹
4,48,000. Total equity share capital of F Ltd. was ₹ 2,00,000. Share of E Ltd. in pre -
acquisition profits of F Ltd. was ₹ 1,27,000.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.16

Calculate the cost of control and minority interest that will appear in consolidated balance
sheet.

Revaluation of Assets and Liabilities of Subsidiary Co.

PQ No 16.10: The parent paid ₹ 48,000 to acquire 75% of 3,000 ordinary shares of ₹ 10.00
and reserves of the subsidiary were reported as ₹ 35,000 and fair valuation of its assets
identified a gain of ₹ 5,000.
Calculate the cost of control and minority interest that will appear in consolidated balance
sheet.

PQ No 16.11: Following are the details of Om Ltd. on 31.3.2017:

Share Capital (₹ 10 each) ₹ 2,00,000
Plant & Machinery ₹ 1,35,000
Hari Ltd. acquired 80% shares in Om Ltd. on 1.10.2016. Om Ltd. plant and machinery which
stood at ₹ 1,50,000 on 1.4.2016 was considered worth ₹ 1,80,000 as on 1.10.2016, this figure
is to be considered while consolidating the balance sheets.
Calculate:
(i) Revaluation Profit / Loss on Plant and Machinery
(ii) Additional Depreciation / Savings in Depreciation on Plant and Machinery
(iii) Cost of control and Minority interest for consolidation of balance sheet.

PQ No 16.12: Black Ltd. acquired 70% of the equity shares of White Ltd. on 1.1.2019. On
the date, paid-up capital of White Ltd. was 10,000 equity shares of ₹ 10 each; accumulated
reserve balance was ₹ 1,00,000. Black Ltd. paid ₹ 1,60,000 to acquire 70% interest in the
White Ltd. Assets of White Ltd. were revalued on 1.1.2019 and a revaluation loss ₹ 20,000
was ascertained.
Calculate cost of control and minority interest.

PQ No 16.13: P Ltd. acquired 12,000 shares of ₹ 10 each in S Ltd. at ₹ 1,70,000 on 31st

March, 2020. Details of S Ltd. on 31.3.2020 are given below:
Particulars Rs.
Share Capital (₹ 10 each) 1,50,000
Capital Reserve 5,000
General Reserve 1,05,000
Profit & Loss Account 18,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.17

Fixed assets 2,44,700

Interest receivable for the year ended 31.3.2020 amounting to ₹ 100 in respect of a loan
due by P Ltd. has not been credited in the accounts of S Ltd. The directors decided to value
fixed assets of S Ltd. at ₹ 2,39,700.
Calculate the cost of control and minority interest for consolidated balance sheet prepared
for the year ended 31.3.2020.

Adjustment for Stock Reserve

PQ No 16.14: What is the amount of the unrealized profit to be eliminated if the parent’s
year-end inventory includes at ₹ 5,40,000 goods invoiced to it by its 60% owned subsidiary
at cost plus 25%.

PQ No 16.15: Subsidiary’s inventory at the yearend included ₹ 1,80,000 purchased from its
parent. Further goods invoiced by the parent at ₹ 45,000 were in transit. The parent invoices
the subsidiary at cost plus 20%. Calculate the amount of unrealized profit that needs to be
eliminated from the parent’s retained earnings.

PQ No 16.16: A parent owns two third of the subsidiary’s equity. As at a year end the
subsidiary’s inventory including goods sent to it by the parent invoiced at ₹ 3,60,000. Parent
has purchased these goods for ₹ 3,00,000. Show the effect of above transaction in
consolidated financial statements of parent co Nikita Ltd. & subsidiary Renuka Ltd.?

PQ No 16.17: H Ltd. holds 75% Shares in S Ltd. In January, 2019. S Ltd. sold to its parent
company H Ltd. goods costing ₹ 15,000 for ₹ 20,000. On 31st March, 2019 half of these goods
were lying as unsold in godowns of H Ltd.
Show the effect of above transaction in consolidated financial statements of H Ltd. & S Ltd.?

PQ No 16.18: S Ltd. had purchased goods of ₹ 80,000 from its holding company H Ltd. out
of which goods invoiced at ₹ 50,000 were in stock on 31st March, 2020. H Ltd. added 25% to
cost to arrive at invoice price. Calculate Stock reserve to be eliminated from the
consolidated balance sheet.

Adjustment for Inter Co. Debts

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.18

PQ No 16.19: As at the year end the parent’s statement of financial position report rent
receivables as an asset at ₹ 60,000 and this includes ₹ 15,000 due from the subsidiary.
Subsidiary reports rent payable as ₹ 15,000. Which of the following will be included in the
consolidated statement of financial position?

PQ No 16.20: Following are the balances of H Ltd. & S Ltd. on 31.3.2019:

Particulars H Ltd. S Ltd.
Debtors 3,40,000 2,05,000
Creditors 1,95,000 1,10,000
Bills Receivable 50,000 -
Bills Payable - 80,000
Bills accepted by S Ltd. were all shown by H Ltd. and H Ltd. had got bills amounting to ₹
30,000 discounted with bank. On 31.3.2019, S Ltd. owed ₹ 30,000 to H Ltd. for goods
purchased from it.
Show the effect of above transaction in consolidated financial statements of H Ltd. & S Ltd.?

Adjustment for Cash in Transit

PQ No 16.21: Any amount owed by one member of a group to another need to be cancelled
when preparing the consolidated statements of financial position. As at the year end the
parent’s receivable includes ₹ 90,000 due from the subsidiary; whereas the subsidiary
reports that it owes only ₹ 60,000 to the parent. Difference has arisen because of cash in
transit. Which is the correct way of dealing with the situation when preparing the
consolidated statement of financial position?

PQ No 16.22: S Ltd. is subsidiary of H Ltd. S Ltd. remitted a cheque for ₹ 5,000 to H Ltd.
on 30th March, 2018, which was received by H Ltd. on 1st April, 2019. Accounting year of
both companies closed on 31st March 2019.
Show the effect of above transaction in consolidated financial statements of H Ltd. & S Ltd.?

PQ No 16.23: Following are the balance sheets of H. Ltd. and its subsidiary S. Ltd. as at 31st
March, 2007:
Particular H. Ltd (₹) S. Ltd (₹)
Equities & Liabilities
Shareholder’s Funds:
Share Capital ₹ 10 each fully paid 6,00,000 2,00,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.19

General Reserves 3,40,000 80,000

Profit & Loss Account 1,00,000 60,000
Current Liabilities:
Creditors 70,000 35,000
11,10,000 3,75,000
Assets
Non – Current Assets:
Plant & Machinery 3,90,000 1,35,000
Furniture 80,000 40,000
80% Shares in S Ltd. (at cost) 3,40,000 -
Current Assets
Stock 1,80,000 1,20,000
Debtors 50,000 30,000
Cash at Bank 70,000 50,000
11,10,000 3,75,000
Additional Information
1. Profit & loss account of S Ltd. stood at ₹ 30,000 On 1st April, 2006 whereas general
reserve stood at ₹ 80,000 even on this date.
2. H Ltd. acquired 80% shares in S Ltd. on 1st October, 2006.
3. S Ltd.’s plant and machinery which stood at ₹ 1,50,000 on 1st April, 2006 was considered
worth ₹ 1,80,000 as on 1st October, 2006, this figure is to be considered while
consolidating the balance sheets.
You are required to prepare consolidated balance sheet as at 31st March, 2007.

PQ No 16.24: On 31.3.2014 the balance sheet of H Ltd. and its subsidiary S Ltd. are as
follows:
Particular H Ltd S Ltd
Equities & Liabilities
Shareholder’s Funds:
Equity Share Capital of ₹ 10 each 4,00,000 1,00,000
General Reserve 75,000 5,000
Profit & Loss Account 45,000 27,500
Current Liabilities:
Creditors 35,000 25,000
Bills Payable 25,000 15,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.20

5,80,000 2,02,500
Assets
Non – Current Assets:
Land & Buildings 1,20,000 40,000
Machinery 1,50,000 10,000
Investments in S Ltd. (7,500 Shares at Cost 1,40,000 -
Preliminary Expenses 5,000 2,000
Current Assets:
Stock 52,500 85,500
Debentures 80,000 45,000
Bills Receivable 22,500 15,000
Cash & Bank 10,000 5,000
5,80,000 2,02,500
Draw a consolidated balance sheet as at 31.3.2014 after consideration following
information.
1. H Ltd. acquired the shares on 31st July, 2013.
2. The balance of general reserve and profit and loss account on 1st April 2013 of S Ltd.
were ₹ 10,000 and ₹ 7,500 respectively.
3. In January, 2014 H Ltd. sold to S Ltd. goods costings ₹ 7,500 for ₹ 10,000. On 31st March,
2014, 50% of these goods were lying as unsold in godown of S Ltd.
4. Bills receivable of ₹ 12,500 of H Ltd. are received from S Ltd.
5. Creditors of S Ltd. include ₹ 6,000 due to H Ltd.
6. S Ltd. remitted a cheque for ₹ 1,500 to H Ltd. on 30th March, 2014, which was received
by H Ltd. on 1st April, 2014.

PQ No 16.25:
Particular P Ltd (₹) S Ltd (₹)
Equities & liabilities
Shareholder’s Funds:
3,000 Shares of ₹ 100 each 3,00,000 -
10,000 Shares of ₹ 10 each - 1,00,000
Capital Reserve - 55,000
General Reserve 30,000 1,05,000
Profit & Loss Account 38,200 18,000
Non – Current Liabilities: -

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.21

Loan from S Ltd. 2,100

Current Liabilities
Bills Payable (including ₹ 500 To P Ltd.) - 1,700
Creditors 17,900 7,000
3,88,200 2,86,700
Assets
Non – Current Assets
Fixed Assets 1,50,000 2,44,700
Investments in S Ltd., at Cost 1,70,000
Current Assets:
Stock 40,000 20,000
Loan to P Ltd. - 2,000
Bills Receivable (including ₹200 form S Ltd.) 1,200 -
Debtors 20,000 15,000
Cash 7,000 5,000
3,88,200 2,86,700
There is a contingent liability of ₹ 1,000 for bills discounted appearing in the balance sheet
of P Ltd.
P Ltd. acquired 8,000 shares of ₹ 10 each in S Ltd. on 31st March, 2005.
You are given the following additional information:
1. S Ltd. made a bonus issue on 31st March, 2005 of one share for every two shares held,
reducing capital reserve by an equivalent amount, but the transaction is not shown in
the balance sheet.
2. Interest receivable amounting to ₹ 100 in respect of a loan due by P Ltd. has not been
credited in the accounts of S Ltd.
3. The directors decided that the fixed assets of S Ltd. were overvalued and should be
written down by ₹ 5,000.
Prepare a consolidated balance sheet of the two companies as at 31st March, 2005 giving all
the workings.

PQ No 16.26: Following are the abridged balance sheet of Hary Ltd. and Say Ltd. as on 31st
March, 2009:
Particular Hary Ltd. (₹) Say Ltd. (₹)
Equities & Liabilities
Shareholders’ Funds:

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.22

Equity Share Capital (₹ 100 each) 10,00,000 5,00,000

General Reserve 1,00,000 1,70,000
Profit & Loss Account 1,60,000 1,30,000
Current Liabilities 4,40,000 2,00,000
17,00,000 10,00,000
Assets
Fixed Assets 4,80,000 2,50,000
Investments in Shares of Say Ltd. 5,00,000 -
Current Assets 7,20,000 7,50,000
17,00,000 10,00,000
Additional Information:
1. On 1st July, 2008, Hary Ltd. acquired 3,000 shares of in Say Ltd. The reserves and surplus
position of Say Ltd. as on 1st April, 2008 was as under:
General Reserve ₹ 2,50,000
Profit & Loss A/c (Cr.) ₹ 1,20,000
st
2. On 1 October; 2008, Say Ltd. issued one equity share for every four shares held as
bonus shares out of general reserve. No entry has been made in the books of Hary Ltd.
for issue of bonus shares.
3. On 30th September, 2008, Say Ltd. declared a dividend out of pre-acquisition profits @
25% on ₹ 4,00,000, its capital on that date. Hary Ltd. credited the dividend to its
Profit and loss account.
4. Say Ltd. owed Hary Ltd. ₹ 50,000 for purchase of stock from Hary Ltd. The entire stock
is held by Say Ltd. on 31st March, 2009. Hary Ltd. made a profit of 25% on cost.
Prepare a consolidated balance sheet of Hary Ltd. and its subsidiary Say Ltd. as on 31st
March, 2009.

PQ No 16.27`: On 1st August, 2002, Honey Ltd. purchased 8,000 shares in Sonly Ltd. at ₹
175 per share. The balance sheet of Soney Ltd. as at 31st March, 2003 is as follows:
Particular ₹
Equities & Liabilities
Shareholder’s Funds:
Share Capital (₹ 100 each) 10,00,000
Reserves on 1.4.2002 4,00,000
Profit & Loss Account 3,00,000
Non-Current Liabilities:

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Consolidation C l a s s N o t e s | 16.23

10% Debentures of ₹ 100 each 2,00,000

Current Liabilities:
Sundry Creditors 4,00,000
23,00,000
Assets ₹
Goodwill 1,00,000
Fixed Assets (cost ₹ 20,00,000) 16,00,000
Current Assets 6,00,000
23,00,000
Additional information:
1. The opening balance in the profit and loss account was ₹ 1,60,000 out of which dividend
amounting to ₹ 1,00,000 was paid in September, 2002.
2. Honey Ltd. held 50% of the debentures in Soney Ltd
3. Sundry creditors include ₹ 40,000 payable to Honey Ltd.
Calculate Cost of Capital and Minority Interest.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.8

5. Acquisition and Disposals of Subsidiaries and other Business Units

The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or
other business units should be presented separately and classified as investing activities.

6. Non-cash Transactions
Investing and financing transactions that do not require the use of cash or cash equivalents
should be excluded from a cash flow statement.
Examples: Acquisition of machinery by issue of equity shares or redemption of debentures
by issue of equity shares.

Q No. 5: State the meaning of the terms: (i) Cash (ii) Cash Equivalents, (ii) Cash flows.
Answer:
(i) Cash: Cash comprised cash in hand and demand deposits with bank.
(ii) Cash Equivalent: Cash Equivalents are short term highly liquid investments that are
readily convertible into known amount of cash and which are subject to an insignificant risk
of changes in value.
Example: Treasury Bills, Commercial Papers etc.
(iii) Cash Flow: Cash flows are inflows and outflows of cash and cash equivalents. It means
the movement of cash into organization and movement of cash out of the organization. The
difference between cash inflow and cash outflow is known as net cash flow which can either
be net cash inflow or net cash outflow.
Cash flows excludes movement between items that constitute cash and cash equivalent
because these components are part of cash management of an enterprise rather than part
of operating, investing and financing activity.
Cash management includes the investment of excess cash in cash equivalent.

Practical Question

Q No. 1: Calculate Cash Flow from operating Activities from the following details:
Particulars 31st March, 2014 31st March, 2013
Surplus, i.e., Balance in statement of profit and Loss 80,000 60,000
Trade Receivables 25,000 31,000
Provision for Depreciation 40,000 30,000
Inventories 80,000 60,000
Outstanding Rent 12,000 21,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.9

Goodwill 30,000 38,000

Prepaid insurance 1,000 2,000
Trade Payables (creditors) 13,000 19,000

Q No. 2: From the following information, calculate cash flow from investing Activities:
Rs
Purchase of Machine 2,50,000
Purchase of Goodwill 1,00,000
Sale of Machine 35,000
Sale of investment 50,000
Purchase of investment 1,50,000
Sale of patents 40,000
Interest and Dividend Received 10,000

Q No. 3: From the following information, calculate cash Flow from financing Activities:
Particulars 31st March, 2014 (Rs) 31st March, 2013 (Rs)
Equity share capital 10,00,000 9,00,000
Securities premium Reserve 2,60,000 2,50,000
12% Debentures 1,00,000 1,50,000

Q No. 4: From the Following extracts of Balance sheets of Exe Ltd., Calculate Cash flow
from Financing Activities:
Particulars 31st March, 2014 (Rs) 31st March, 2013 (Rs)
Equity share capital 5,25,000 4,00,000
10% Preference share capital 4,00,000 5,50,000
Securities premium Reserve 2,25,000 1,00,000
12% Debentures 4,00,000 3,00,000

Q No. 5: The Balance Sheets of a Prem Limited Company at 31.3.2021 and 31.3.2022 were
as follows:
I. Equity and Liabilities 31.3.2021(Rs.) 31.3.2022 (Rs.)
Equity Share Capital 4500 6500
General Reserve 500 750
Profit and Loss Account 1000 1500
Debentures 1000 2000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.10

Sundry 870 1100

Creditors 7870 11850
Total 7870 11850
Assets Rs. Rs.
Fixed Assets 4600 8300
Stock 1100 1300
Debtors 1870 1950
Cash 200 2500
Preliminary Expenses 100 50
Total 7870 11850
Additional information:
Depreciation on fixed assets for the year 2021-22 was Rs. 1170. Prepare a Cash Flow
Statement.

Q No. 6: The following Balance Sheets are given:

I. Equity and Liabilities 2021 (Rs.) 2022 (Rs.)
Equity Share Capital 30000 40,000
Redeemable Pref. Capital 15000 10,000
General Reserve 4000 7000
Profit and Loss Account 3000 4800
Proposed Dividend 4200 5000
Creditors 5500 8300
Bills Payable 2000 1600
Provision for Taxation 4000 5000
Total 67700 81700
II. Assets
Goodwill 11500 9000
Land and Building 20000 17000
Plant 8000 20000
Debtors 16000 20000
Stock 7700 10900
Bills Receivable 2000 3000
Cash in Hand 1500 1000
Cash at Bank 1000 800
Total 67700 81700

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.11

It is also given that:

(a) Depreciation of Rs. 2000 on land and building and Rs.1000 on plant has been charged in
2022.
(b) Interim dividend of Rs. 2000 has been paid in 2022.
(c) Income tax Rs.3500 has been paid during 2022.
Prepare Cash Flow Statement for the year 2022.

Q No. 7: From the following information, prepare Cash Flow Statement for Pioneer Ltd.
Balance Sheet of Pioneer Ltd. as on March 31, 2014
Particulars Notes 31/3/14 31/3/13
I. Equity and Liabilities
1. Shareholders’ Funds
a) Share capital 1 7,00,000 5,00,000
b) Reserve and surplus 2 3,50,000 2,00,000
2. Non-current Liabilities
a) Long-term borrowings: Bank Loan 50,000 1,00,000
3. Current Liabilities
a) Trade payables 45,000 50,000
b) Other current liabilities:
outstanding rent 7,000 5,000
c) Short-term provisions 3 1,20,000 80,000
Total 12,72,000 9,35,000
II. Assets
1. Non-current assets
a) Fixed assets
(i) Tangible assets 4 5,00,000 5,00,000
(ii) Intangible assets 5 95,000 1,00,000
b) Non-current investments 1,00,000 –
2. Current assets
a) Inventories 1,30,000 50,000
b) Trade receivables 1,20,000 80,000
c) Cash and cash equivalents 6 3,27,000 2,05,000
Total 12,72,000 9,35,000
Notes to Accounts:
Particulars 31/3/14 31/3/13

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.12

1. Equity Share Capital 7,00,000 5,00,000

2. Reserve and Surplus
Surplus: i.e. Balance in Statement of Profit and Loss 3,50,000 2,00,000
3. Short-term Provision:
Proposed Dividend 70,000 50,000
Provision for Taxation 50,000 30,000
1,20,000 80,000
4. Fixed Assets
i) Tangible assets
Equipment’s 2,30,000 2,00,000
Furniture 2,70,000 3,00,000
5,00,000 5,00,000
5. Intangible Assets
Patents 95,000 1,00,000
6. Cash and cash equivalents
i) Cash 27,000 5,000
ii) Bank balance 3,00,000 2,00,000
3,27,000 2,05,000
During the year, equipment costing Rs. 80,000 was purchased. Loss on Sale of equipment
amounted to Rs. 5,000. Depreciation of Rs. 15,000 and Rs. 3,000 charged on equipment’s
and furniture respectively.

Q No. 8: From the following condensed comparative Balance Sheets of Hotel Hills Ltd., and
additional information, prepare a Cash Flow Statement for the year 2022.
I. Equity and Liabilities 2021 (Rs.) 2022 (Rs.)
Share Capital 7000 8000
Share Premium 900 1100
Retained earnings 2382 3082
7% Mortgage loan -- 2000
Creditors 690 600
Outstanding salaries 200 140
Provision for taxation 100 140
Total 11272 15062
II. Assets
Plant & Machinery 6200 6600

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.13

Accumulation Dep. on plant and mach (3700) (2620)

Building 9500 11600
Accumulation depreciation on Building (4300) (4500)
Land 1000 1200
Stock 1022 962
Debtors 860 760
Prepaid expenses 72 80
Cash 618 980
Total 11272 15062
Additional information:
1. Plant costing Rs. 1600 (accumulated depreciation Rs. 1480) was sold during the year for
Rs. 120.
2. Building was acquired during the year at a cost of Rs. 2100. In addition to cash payment
of Rs. 100, 7% mortgage loan was raised for the balance.
3. Dividend of Rs. 800 was paid during the year.
4. A sum of Rs. 1390 was transferred to provision for taxation account in 2022.

Q No. 9: J Ltd. presents you the following information for the year ended 31.03.2007:
Particular Rs. ‘000
Net profit before tax provision 36,000
Dividends paid 10,202
Income Tax paid 5,100
Book value of assets sold 222
Loss on sale of assets 48
Depreciation debited to P& L A/c 24,000
Capital Grant received – Amortized in P&L A/c 10
Book value of investment sold 33,318
Profit on sale of investment 120
Interest income from investment credited to P&L A/c 3,000
Interest Expenses debited to P&L A/c 12,000
Interest actually paid 13,042
Increase in Working capital (Excluding cash and bank balance) 67,290
Purchase of fixed Assets 22,092
Expenditure on Construction Work 41,688
Grant received for capital project 18

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.14

Long term borrowings from banks 55,866

Provision for Income Tax debited in P&L A/c 6,000
Cash and bank balance on01.04.2006 6,000
Cash and bank balance on 31.03.2007 8,000
You are required to prepare a Cash Flow Statement as per AS-3 (Revised).

Q No. 10: Balance Sheet of M/s Hero ltd. as on 31st March, 2010 and 2011 are as follows:
Rs in ‘000
31.03.10 31.03.11
Equity share capital 1,000 1,150
Capital Reserve - 10
General reserve 250 300
Profit and loss A/c 150 180
Long term loan 500 400
Sundry Creditors 500 400
Provision for tax 50 60
Proposed Dividend 100 125
Total 2,550 2,625
Assets 31.03.10 31.03.11
Land and Building 500 480
Machinery 750 820
Investments 100 50
Stock 300 280
Sundry Debtors 400 420
Cash in hand 200 165
Cash at bank 300 410
2,550 2,625
Additional information:
• Dividend of Rs.1,00,000 was paid during the year ended 31st March,2011.
• Machinery purchased during the year for Rs.1,25,000.
• Company sold some investment at profit of Rs. 10,000 which was credited to capital
reserve.
• Depreciation written off on land and building Rs. 20,000.
• Income tax provided during the year Rs. 55,000.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.15

From the above particulars, prepare cash flow statement for the year ended 31st March,
2011 as per AS 3 using Indirect Method.

Practice Questions

PQ 1: From the following balances calculate cash from operations:

31st December
Profit made during the year
2021 2022
Bills receivable 5,000 4700
Debtors 1000 1250
Bills payable 2000 2500
Creditors 800 600
Outstanding Expenses 100 120
Prepaid Expenses 80 70
Accrued Income 60 75
Income received in advanced 80 25
Profit made during the year – 7,000
Solution:
Cash Flow Statement
Calculation of cash from Operating Activities
Particulars Amount (Rs.) Amount (Rs.)
Profit made during the year 7,000
Add: Decrease in current assets and
increases in current liabilities:
Decrease in bills receivable (C.A.) 300
Increase in bills payable (C.L.) 500
Increase in outstanding expenses (C.L.) 20
Decrease in prepaid expenses (C.A.) 10 830
Total 7,830
Less: Increase in current assets and
decrease in current liabilities:
Increase in debtors (C.A.) 250
Decrease in creditors (C.L.) 200
Increase in accrued income (C.A.) 15
Decrease in income received in advance (C.L.) 55 520

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.16

Cash from Operating Activities 7,310

PQ 2: Following is the Balance Sheet of ABC Co. Ltd., on at 01st January, 2022 and 31st
December 2022.
(Amount In Rs.)
Particulars 01-01-2022 31-12-2022
I. Equity and Liabilities:
Equity share capital 30,000 35000
Share premium -- 3000
General Reserve 4500 6500
Profit and Loss 3000 8080
6% Debentures -- 7000
Sundry creditors 8500 9070
Provision for taxation 2250 4050
Proposed Divided 3000 3500
Total 51250 76200
II. Assets:
Land and building 23,000 39000
Plant and machinery 8540 14000
Furniture 550 650
Stock 8240 9570
Sundry debtors 7500 8550
Bank balance 3420 4430
Total 51250 76200
Additional Information:
Depreciation written off during the year
Land and building 6000
Plant and machinery 5000
Furniture 120
You are required to prepare a cash flow statement Flow Statement for the year ended 31-
12-2022
Solution:
Cash Flow Statement (for the year ending on 31-03-2022)
Particulars Rs. Rs.
(i) Cash Flow from Operating Activities

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.17

Profit during the year (8080-3000) 5080

Add: Appropriation
General reserve (6,500 - 4,500) 2000
Proposed dividend 3500 5,500
Profit after tax 10,580
Add: Taxation provision 4050
Profit before ax 14,630
Add: Non-Cash, Non-Operating Expense
Depreciation on:
Land and building 6000
Plant and machinery 5000
Furniture 120 11,120
Add: Increase in CL and Decrease in CA
Increase in creditors (9070 – 8500) 570

Less : Increase in stock (9570 – 8240) (-)1330

Increase in debtors (8550 – 7500) (-)1050 (-)1610

Operating Profit before tax paid 24,140
Less : Income tax paid (-) (-)2250
Cash inflow from operating activities 21690
(ii) Cash Flow from Investing Activities
Less : Purchase of land and building (-) 22000
Purchase of plant and machinery (-)10460
Purchase of furniture (-) 220
Cash outflow from investing activities (-)32680
(iii) Cash Flow from Financing Activities
Add : Issue of equity shares 5000
Share premium 3000
Issue of debentures 7000
Less : Payment of dividend (-) 3000
Cash inflow from financing activities 12000
Net increase in cash 1010
Add : Cash balance in the beginning 3420
Cash balance at the end 4430
Working Note:
Land and Building Account

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.18

Particulars Amt Particulars Amt

To Balance b/d 23000 By Depreciation 6000
To Bank (purchase) 22000 By Balance c/d 39000
45000 45000
Plant and Machinery Account
Particulars Amt Particulars Amt
To Balance b/d 8540 By Depreciation 5000
To Bank (purchase) 10460 By Balance c/d 14000
19000 19000
Furniture Account
Particulars Amt Particulars Amt
To Balance b/d 550 By Depreciation 120
To Bank (purchase) 220 By Balance c/d 650
770 770
Provision for Taxation Account
Particulars Amt Particulars Amt
To Bank (tax paid) 2250 By Balance b/d 2250
To Balance c/d 4050 By P & L A/c 4050
6300 6300

PQ 3: Following is the Financial Statement of Garima Ltd., prepare cash flow statement.
Particulars Note 31/03/2014 31/03/2013
No. (Rs.) (Rs.)
I. Equity and Liabilities
1. Shareholders’ Funds
a) Share capital 1 4,40,000 2,80,000
b) Reserve and surplus–Surplus 2 40,000 28,000
2. Current Liabilities
a) Trade payables 1,56,000 56,000
b) Short-term provisions (Provision for 12,000 4,000
taxation)
Total 6,48,000 3,68,000
II. Assets
1. Non-current assets
a) Fixed assets

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.19

i) Tangible 3,64,000 2,00,000

2. Current assets
a) Inventories 1,60,000 60,000
b) Trade receivables 80,000 20,000
c) Cash and cash equivalents 28,000 80,000
d) Other current assets 16,000 8,000
Total 6,48,000 3.68,000
Notes to Accounts
Particulars 31/03/2014 31/03/2013
(Rs.) (Rs.)
1. Share capital
a) Equity share capital 3,00,000 2,00,000
b) Preference share capital 1,40,000 80,000
4,40,000 2,80,000
2. Reserve and surplus
Surplus in statement of profit and loss at
the beginning of the year 28,000
Add: Profit of the year 16,000
Less: Dividend 4,000
Profit at the end of the year 40,000
Interest paid on Debenture Rs. 600 Rs.
Solution:
Cash Flow Statement of Garima Ltd.
For the year ended 31st March, 2014
Particular Rs. Rs.
Profit After Tax 16,000
Add: Provision for Tax during the year 12,000
Profit before tax 28,000
Add: Non cash or non operation expenses
Finance Cost[Interest Paid] 600
Less: Non Cash or Non Operating Income nil
Profit Before change in Working Capital 28,600
Add: Inc. in CL and Dec. in CA
Trade Payable 1,00,000 1,00,000
Less: Dec. in CL and Inc. in CA

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.20

Trade Receivable (60,000)

Inventory (1,00,000)
Other current assets (8,000) (1,68,000)
Cash Operating Profit before tax (39,400)
less: Tax Paid (4,000) (43,400)
Cash flow from Operating Activity
(B) Investing Activity
Purchase of Fixed Asset (1,64,000)
Cash Used in Investing Activity (1,64,000)
(C) Financing Activity
Interest paid (600)
Issue of Pref. Shares 60,000
Issue of Equity Shares 1,00,000
Dividend Paid during the year (4,000)
Cash flow (Used) from financing Activity 1,55,400
Net Cash Flow (Used) [A + B+ C] (52,000)
Add: Op. Bal. of cash and cash equ. 80,000
Cl. Bal. of Cash and Cash equ. 28,000

Working Note
1. Provision for Taxation A/c
To, Cash/ bank A/c [Tax paid] 4,000 By, balance b/d 4,000
To, balance c/d 12,000 By, P&L A/c [bal. fig.] 12,000
16,000 16,000

PQ 4: From the following Balance Sheet of Yogita Ltd., prepare cash flow statement:
Particulars Note 31/03 31/03
I. Equity and Liabilities 2014 (Rs.) 2013 (Rs.)
1. Shareholders’ Funds
a) Share capital 1 4,00,000 2,00,000
b) Reserve and surplus–Surplus 2,00,000 1,00,000
2. Non-current Liabilities
a) Long-term borrowings 2 1,50,000 2,20,000
3. Current Liabilities
a) Short-term borrowings 1,00,000 -

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.21

(Bank overdraft)
b) Trade payables 70,000 50,000
c) Short-term provision 50,000 30,000
(Provision for taxation)
Total 9,70,000 6,00,000
II. Assets
1. Non-current assets
a) Fixed assets
i) Tangible 7,00,000 4,00,000
2. Current assets
a) Inventories 1,70,000 1,00,000
b) Trade Receivables 1,00,000 50,000
c) Cash and cash equivalents - 50,000
Total 9,70,000 6,00,000
Notes to Accounts
Particulars 31/03/2014 (Rs.) 31/03/2013 (Rs.)
1. Share capital
a) Equity share capital 3,00,000 2,00,000
b) Preference share capital 1,00,000 -
4,00,000 2,00,000
2. Long term borrowings
Long-term loan - 2,00,000
Long-term Rahul 1,50,000 20,000
1,50,000 2,20,000
Additional Information:
Net Profit for the year after charging Rs. 50,000 as Depreciation was Rs. 1,50,000.
Dividend paid on Share was Rs. 50,000, Tax Provision created during the year amounted to
Rs. 60,000.
Solution:
Cash Flow Statement of Yogita Ltd. (for the year ended 31st March 2014)
Particular Rs. Rs.
(A) Operating Activity
Profit after tax 1,50,000
Add: Provision for tax created during the year 60,000
Profit before tax 2,10,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.22

Add: non cash non-operating Expenses

Depreciation 50,000 50,000
Less: non Cash Non-operating Income Nil
Operating Profit before change in working
2,60,000
Capital
Add: Increase in current liability and decrease in current Assets
Trade Payable 20,000 20,000
Less: Increase in Current Assets and Decrease in current
Liability
Inventory (70,000)
Trade Receivable (50,000) (1,20,000)
Cash Operating Profit before tax 1,60,000
Less: tax Paid during the year (40,000)
Cash flow from operating activity 1,20,000
(B) Investing activity
Purchase of Fixed Assets (3,50,000)
Cash Used in Investing activity (3,50,000)
(C) Financing Activity
Issue of Equity Share Capital 1,00,000
Issue of preference Share Capital 1,00,000
Repayment of Bank Loan (2,00,000)
Loan from Rahul 1,30,000
Dividend Paid during the year (50,000)
Cash flow from financing Activity 80,000
Net Cash Flow (A+B+C) (1,50,000)
Add: Op. Bal. of cash and Cash Eq. 50,000
Cash 50,000
Bank Nil
Cl. Bal. of Cash and Cash Eq. (1,00,000)
Cash Nil
Bank (OD) (1,00,000)

Working note
Particular Rs. Particular Rs.
Provision for Tax A/c

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Cash Flow Statement C l a s s N o t e s | 17.23

To, Cash/ Bank A/c [Tax Paid] 40,000 By, Bal b/d 30,000
To, Bal c/d 50,000 By, P&L A/c 60,000
90,000 90,000
2. Fixed Assets A/c
To, Bal b/d 4,00,000 By, Depreciation 50,000
To, cash/ Bank A/c [Purchase] [Bal. fig.] 3,50,000 By, Bal c/d 7,00,000
7,50,000 7,50,000

Closing bal of P&L a/c 2,00,000

Less: Opening Bal. of P&L A/c (1,00,000)
Surplus During the year 1,00,000
Add: Appropriation
Dividend Paid 50,000
Profit after Tax 1,50,000
Add: Provision for tax 60,000
Profit before Tax 2,10,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Financial Statement Analysis C l a s s N o t e s | 18.9

1. Use ratios to get clues to ask the right questions: By themselves ratios rarely provide
answers, but they definitely help to raise the right questions.
2. Be selective in the choice of ratios: Compute scores of different ratios and easily drown
into confusion. For most purposes a small set of ratios-three to seven-would suffice. Few
ratios, aptly chosen, would capture most of the information that can derive from financial
statements.
3. Employ proper benchmarks: It is a common practice to compare the ratios (calculated
from a set of financial statements) against some benchmarks. These bench marks may be
the average ratios of the industry or the ratios of the industry leaders or the historic ratios
of the firm itself.
4. Know the tricks used by accountants: Since firms tend to manipulate the reported
income, should learn about the devices employed by them.
5. Read the footnotes: Footnotes sometimes contain valuable information. They may reveal
things that management may try to hide. The more difficult it is to read a footnote, the
more information-laden it may be.
6. Remember that financial statement analysis is an odd mixture of art and science:
Financial statement analysis cannot be regarded as a simple, structured exercise. It is a
process requiring care, thought, common sense, and business judgment-a process for which
there are no mechanical substitutes.

Practical Question

Q No. 1: Current Ratio is 3.5:1; Working Capital is Rs. 90,000.

Calculate the amount of Current Assets and Current Liabilities.

Q No. 2: Shine Limited has a current ratio 4.5 : 1 and quick ratio 3 : 1; if the inventory is
36,000, calculate Current Liabilities and Current Assets.

Q No. 3: Current Liabilities of a company are Rs. 75,000. If current ratio is 4:1 and Liquid
Ratio is 1 : 1, calculate value of Current Assets, Liquid Assets and Inventory.

Q No. 4: Handa Ltd. has inventory of Rs. 20,000. Total liquid assets are Rs. 1,00,000 and
quick ratio is 2 : 1. Calculate current ratio.
Q No. 5: Calculate Current Ratio if: Inventory is Rs. 6,00,000; Liquid Assets Rs. 24,00,000;
Quick Ratio 2 : 1.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Financial Statement Analysis C l a s s N o t e s | 18.10

Q No. 6: Calculate debt-equity ratio from the following information:

Total Assets Rs. 15,00,000
Current Liabilities Rs. 6,00,000
Total Debts Rs. 12,00,000

Q No. 7: Calculate Current Ratio and Quick Ratio from the following information:
Particulars (Rs.)
Inventories 50,000
Trade receivables 50,000
Advance tax 4,000
Cash and cash equivalents 30,000
Trade payables 1,00,000
Short-term borrowings (bank overdraft) 4,000

Q No. 8: From the following balance sheet of a company, calculate Debt-Equity Ratio:
I. Equity and Liabilities 2022 (Rs.)
Share Capital 8000
Share Premium 1100
Retained earnings 3082
7% Mortgage loan 2000
Creditors 600
Outstanding salaries 140
Provision for taxation 140
Total 15062
II. Assets
Plant & Machinery 6600
Accumulation Dep. on plant and mach (2620)
Building 11600
Accumulation depreciation on Building (4500)
Land 1200
Stock 962
Debtors 760
Prepaid expenses 80
Cash 980
Total 15062

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Financial Statement Analysis C l a s s N o t e s | 18.11

Q No. 9: Company A lists Rs. 40,00,000 in short-term liabilities and Rs. 70,00,000 in long-
term liabilities on their balance sheet. They have also issued Rs. 20,00,000 in preferred
stock, Rs. 5,00,000 in minority interest, and have around 8,00,000 outstanding shares trading
at Rs. 10 per share. Using all that information, calculate the debt-to-capital ratio.

Q No. 10: From the following details, calculate interest coverage ratio: Net Profit after tax
Rs. 60,000; 15% Long term debt 10,00,000; and Tax rate 40%.

Q No. 11: Company A records EBIT of Rs. 300,000, operating lease payments of Rs. 200,000,
and Rs. 50,000 in interest expense. Calculate Fixed Charges Coverage Ratio.

Q No. 12: From the following information, calculate inventory turnover ratio :
Rs.
Inventory in the beginning = 18,000
Inventory at the end = 22,000
Net purchases = 46,000
Wages = 14,000
Revenue from operations = 80,000
Carriage inwards = 4,000

Q No. 13: From the following information, calculate inventory turnover ratio:
Rs.
Revenue from operations = 4,00,000
Average Inventory = 55,000
Gross Profit Ratio = 10%

Q No. 14: Calculate the Trade receivables turnover ratio from the following information:
Total Revenue from operations Rs. 4,00,000
Cash Revenue from operations 20% of Total Revenue from operations
Trade receivables as at 1.4.2021 Rs. 40,000
Trade receivables as at 31.3.2022 Rs. 1,20,000

Q No. 15: Following information is available for the year 2022-23, calculate gross profit
margin ratio:
Revenue from Operations: Cash 25,000
Credit 75,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Financial Statement Analysis C l a s s N o t e s | 18.12

Purchases: Cash 15,000

Credit 60,000
Carriage Inwards 2,000
Salaries 25,000
Decrease in Inventory 10,000
Return Outwards 2,000
Wages 5,000

Q No. 16: Given the following information:

Revenue from Operations 3,40,000
Cost of Revenue from Operations 1,20,000
Selling expenses 80,000
Administrative Expenses 40,000
Calculate Gross profit ratio and EBITDA margin

Q No. 17: Gross profit ratio of a company was 25%. Its credit revenue from operations was
Rs. 20,00,000 and its cash revenue from operations was 10% of the total revenue from
operations. If the indirect expenses of the company were Rs. 50,000, calculate its net profit
ratio.

Q No. 18: From the following information calculate Gross Profit Ratio, Inventory Turnover
Ratio and Trade Receivable Turnover Ratio.
Revenue from Operations Rs. 3,00,000
Cost of Revenue from Operations Rs. 2,40,000
Inventory at the end Rs. 62,000
Gross Profit Rs. 60,000
Inventory in the beginning Rs. 58,000
Trade Receivables Rs. 32,000

Q No. 19: Calculate Inventory Turnover Ratio from the data given below:
Inventory in the beginning of the year Rs. 10,000
Inventory at the end of the year Rs. 5,000
Carriage Rs. 2,500
Revenue from Operations Rs. 50,000
Purchases Rs. 25,000

Unique Academy For Commerce [Link]. 8007916622 / 8007916633

Financial Statement Analysis C l a s s N o t e s | 18.13

Q No. 20: Calculate Inventory Turnover Ratio if: Inventory in the beginning is Rs. 76,250,
Inventory at the end is Rs. 98,500, Sales is Rs. 5,20,000, Sales Return is Rs. 20,000, Purchases
is Rs. 3,22,250.

Practice Questions

PQ 1: Ltd., has a current ratio of 3.5:1 and quick ratio of 2:1. If excess of current assets
over quick assets represented by inventories is Rs. 24,000, calculate current assets and
current liabilities.
Solution:
Current Ratio = 3.5:1
Quick Ratio = 2:1
Let Current liabilities = x
Current assets = 3.5x
and Quick assets = 2x
Inventories = Current assets – Quick assets
24,000 = 3.5x – 2x
24,000 = 1.5x
x = Rs.16,000
Current Liabilities = Rs.16,000
Current Assets = 3.5x = 3.5 × Rs. 16,000 = Rs. 56,000.

Unique Academy For Commerce [Link]. 8007916622 / 8007916633